W.W. Grainger, Inc. (GWW), a leading broad line supplier of maintenance, repair, and operating products, reported a 4.3% increase in total sales and a 4.7% rise in diluted EPS to $9.87 in its Third Quarter 2024 Earnings Conference Call. The company's operating margin was a robust 15.6%, with an operating cash flow of $611 million. Grainger also returned $328 million to shareholders through dividends and share repurchases.
The High-Touch Solutions segment saw a 3.3% sales increase, while the Endless Assortment segment, including Zoro and MonotaRO, reported an 8.1% sales increase. The company narrowed its full-year 2024 earnings guidance, with a projected daily organic constant currency sales growth of 4.5% to 5.25% and diluted adjusted EPS between $38.65 and $39.35.
Key Takeaways
- W.W. Grainger reported a 4.3% increase in total reported sales and a 4.7% rise in diluted EPS to $9.87.
- Operating margins stood strong at 15.6%, with operating cash flow reaching $611 million.
- The company returned $328 million to shareholders through dividends and share repurchases.
- Sales in the High-Touch Solutions segment increased by 3.3%, supported by strong data utilization and customer experience focus.
- The Endless Assortment segment, including Zoro and MonotaRO, experienced an 8.1% sales increase.
- Full-year 2024 earnings guidance was narrowed, with projected daily organic constant currency sales growth of 4.5% to 5.25% and diluted adjusted EPS between $38.65 and $39.35.
- Preliminary October growth rate was approximately 6.5%, influenced by hurricane-related sales.
Company Outlook
- The company is confident in executing its strategic initiatives and meeting stakeholder goals for the end of the fiscal year.
- Grainger aims to outgrow the market by 400 to 500 basis points despite a sluggish macro environment.
- The balance sheet remains strong, with a focus on returning excess cash to shareholders.
- The year has unfolded as anticipated, with expectations to finish strong.
Bearish Highlights
- A muted demand environment has been a consistent theme throughout the year.
- The company is cautious about the outlook for 2025, with concerns about strong price increases.
Bullish Highlights
- Grainger was recognized as the top-ranked company on the American Opportunity Index, highlighting its commitment to employee development.
- The company reported strong margins in the latest quarter, with MonotaRO at 12.4% and Zoro at 4.3%.
- Operating cash flow outlook has increased by $150 million, and the full-year tax rate assumption has been lowered to around 23.2%.
Misses
- There were no specific misses mentioned in the earning call summary provided.
Q&A Highlights
- Donald Macpherson noted that while share gains in Q3 2023 were likely accurate, current calculations may not fully reflect market realities.
- Deidra Merriwether indicated that pricing has been resilient, with volume trends closer to flat, though there has been positive volume growth in the U.S.
- Gross margins are expected to expand sequentially from Q3 to Q4 2024, driven by supplier rebates.
In summary, W.W. Grainger has demonstrated resilience in a challenging demand environment, with solid sales growth and a strong commitment to shareholder returns. The company remains optimistic about its strategic initiatives and its ability to deliver value to stakeholders.
InvestingPro Insights
W.W. Grainger's robust performance in the third quarter of 2024 is further underscored by key metrics and insights from InvestingPro. The company's market capitalization stands at an impressive $54.34 billion, reflecting its strong position in the Trading Companies & Distributors industry.
InvestingPro data reveals that Grainger's revenue for the last twelve months as of Q2 2024 reached $16.75 billion, with a growth rate of 4.59%. This aligns closely with the company's reported 4.3% increase in total sales for Q3 2024, indicating consistent growth momentum. The company's profitability is evident in its gross profit margin of 39.28% and operating income margin of 15.44% for the same period, which supports the robust 15.6% operating margin reported in the earnings call.
One of the InvestingPro Tips highlights that Grainger "has raised its dividend for 31 consecutive years," which is particularly relevant given the company's recent return of $328 million to shareholders through dividends and share repurchases. This commitment to shareholder value is further reinforced by another tip stating that Grainger "has maintained dividend payments for 54 consecutive years."
The company's strong financial position is also evident in the InvestingPro Tip noting that "liquid assets exceed short term obligations," which aligns with the company's reported strong balance sheet and focus on returning excess cash to shareholders.
Investors should note that Grainger is "trading near 52-week high" with a significant "1 Year Price Total Return" of 53.29% as of the latest data. This performance is consistent with the company's positive outlook and narrowed full-year 2024 earnings guidance.
For those interested in a deeper analysis, InvestingPro offers 14 additional tips for W.W. Grainger, providing a comprehensive view of the company's financial health and market position.
Full transcript - Grainger W.W. (GWW) Q3 2024:
Operator: Greetings and welcome to W.W. Grainger Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note this conference is being recorded. I will now turn the conference over to your host, Kyle Bland, Vice President, Investor Relations. Thank you. You may begin.
Kyle Bland: Good morning. Welcome to Grainger's third quarter 2024 earnings call. With me are D.G. Macpherson, Chairman and CEO; and Dee Merriwether, Senior Vice President and CFO. As a reminder, some of the 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, we'll focus on results for the third quarter of 2024, which are consistent on both a 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 E&R Industrial Sales subsidiary, which was sold at the end of 2023. Definitions and a full reconciliation of this and any other non-GAAP financial measures with their corresponding GAAP measures are found in the tables 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 MonotaRO. Please remember that MonotaRO is a public company and follows Japanese GAAP, which differs from U.S. GAAP and is reported in our results one month in arrears. As a result, the numbers discussed will differ from MonotaRO's public statements. Now, I will turn it over to D.G.
Donald Macpherson: Thanks, Kyle. Good morning and thanks for joining the call. Everything we do at Grainger starts with the Grainger Edge and with a focus on the customer. I've had the opportunity to spend a lot of time with customers past few months and while the demand environment remains muted, these visits have highlighted the value that we bring every day. Our strong capabilities, including digital, supply-chain and on-site support allow us to help our customers succeed. No matter what each is facing, we are there to help them overcome challenges. Before I get into the financials, I'd like to take a moment to recognize the Grainger team for their continued work in helping those impacted by the recent hurricanes in the Southeast. Fulfilling our purpose, we keep the world working and supporting our customer operations when they need us most. Our branch, KeepStock, distribution center and sales team members have gone above and beyond over the last few weeks, providing vital supplies and relief resources. And as we always have, our team will continue to work side-by-side with our partners to make sure that these communities have what they need to navigate the road to recovery. Moving to the third quarter, while demand remains soft, the business continues to perform well as we remain focused on being the go-to MRO partner for our customers. Both segments grew in the period and we continue to make strategic progress across the company. In the High-Touch Solutions segment, we're leveraging our customer and product data assets and strong supply chain capabilities to help us advance our strategic growth engines. We've done great work-in 2024, but I'm particularly pleased with how we're continually utilizing our vast array of proprietary data to improve our customer and team member experience. We've launched new capabilities such as analytical tools that arm our sellers with better insights and data to drive more fruitful conversations with our customers. We're also testing a generative AI model in our call centers, which helps us scale our know-how and equip our customer service agents with fast, relevant responses to help customers get what they need quickly and efficiently. These are just some early examples of how we can leverage our data to help drive share, reduce cost and further improve our service advantage. I'm excited about the opportunities ahead in this space. Driving a great customer experience is also underpinned by our world-class supply chain, one that is built specifically to serve B2B customers and ship next day complete orders. During the quarter, we made progress on enhancing our service capabilities and expanding our distribution center network by officially beginning construction on our New Houston area DC. This along with the continued progress at our new Pacific Northwest distribution center will ensure we maintain our service advantage now and into the future. Within the Endless Assortment segment, our focus on growing share of wallet with enterprise customers at MonotaRO and the changes we've made to better communicate delivery expectations at Zoro have both helped reaccelerate growth over the last couple of quarters. These businesses are on the right track for a strong finish to 2024, setting us up nicely to continue gaining share in 2025 and beyond. Now shifting to third quarter financials. Total company reported sales for the quarter were up 4.3% or 4% on a daily organic constant-currency basis, which normalizes for the E&R divestiture and one more selling day in the current year period. Operating margins for the total company remained healthy at 15.6% and EPS finished the quarter up 4.7% to $9.87. Operating cash flow came in at $611 million in the quarter, which allowed us to return a total of $328 million to Grainger's shareholders through dividends and share repurchases. Overall, 2024 is playing out largely as expected as the business continues to perform well and we stay focused on serving customers. With this, we are narrowing our earnings guidance ranges to close out the year, which Dee will outline in a few minutes. As we wrap-up 2024, I'm confident that we will continue to execute well, meet our goals and drive solid results for all stakeholders. Now, I'll turn it over to Dee.
Deidra Merriwether: Thank you, D.G. Turning to Slide 7, you can see the high level third quarter results for the total company, including 4% revenue growth on a daily organic constant-currency basis. This number includes a headwind of roughly 50 basis points from the lap of a heightened level of service engagement in the prior-year quarter. Within the period, we saw relatively stable gross margins across both segments, along with slight deleverage in High-Touch. This led to total company operating margins to be down 30 basis points in the third quarter, largely in line with expectations. Diluted EPS for the quarter of $9.87 was up $0.44 over the prior-year period as higher sales were further aided by a lower share count in the current year. Moving on to segment level results, the High-Touch Solutions segment continues to perform well with sales up 3.3% on a reported basis or 2.5% on a daily organic constant currency basis. Results were driven by solid volume growth and improved price contribution within the segment. We also delivered growth across all geographies in the period in local days, local currencies. In the U.S. specifically, we continue to see flat to positive growth in nearly all customer end segments, including persistent strong performance with contractors, warehousing and healthcare customers. For the segment, gross profit margin finished the quarter at 41.6%, down 10 basis points versus the prior year. In the quarter, we experienced an unfavorable product mix headwind as we lapped a heightened level of service engagements from the third quarter of 2023. This 60 basis point year-over-year headwind was largely offset by several small tailwinds, which included the lap of a one-time adjustment made to clear out unproductive inventory. Price cost for the quarter was roughly neutral. SG&A costs for this segment increased over the period as we continue to invest in demand generation activities, including marketing and seller headcount as well as normal wage inflation. Coupled with the softer topline, this led to SG&A deleverage of 30 basis points. Taking all this together, operating margin for the segment was down 40 basis points versus the prior year, which was largely in line with expectations and remained at a healthy 17.6%. Looking at market outgrowth on Slide 9, using headline industrial production and producer price index, we estimate that the U.S. MRO market grew between 2% and 2.5% in the quarter with price once again contributing nearly all of the market growth. With our High-Touch Solutions U.S. business growing at 2.6% organically, our mathematical market outgrowth in the quarter was roughly 50 basis points in total. This includes approximately 200 basis points of volume outgrowth contribution for the quarter, netted with continued price headwinds when comparing our price contribution to PPI. Volume outgrowth year-to-date is roughly 350 basis points, just shy of our 400 to 500 basis point outgrowth target. As we discussed this year, we're currently in a cycle where the growth rate implied by the headline IP and PPI metrics used in our market model is higher than a number of other external data points across the MRO landscape would suggest. This difference continues to cause noise in our share gain calculation. Although we will not mathematically achieve our market outlook target in 2024, when using our headline market model, we remain pleased with returns we're driving across our outgrowth initiatives and are confident we're taking solid share in the current environment. We believe this market measurement dislocation will normalize overtime and we continue to target 400 basis to 500 basis points of outgrowth annually on average. Now, focusing on the Endless Assortment segment. Sales increased 8.1% or 11.5% on a daily constant-currency basis, which adjusts for the impact of the depreciated Japanese yen. Zoro U.S. was up 11.3%, while MonotaRO achieved 15.4% growth in local days, local constant currency. At a business level, Zoro built on its second quarter performance and once again saw strong growth in the mid-teens from its core B2B customers. The headwinds from non-core B2C and B2C-like customers continues to dissipate with sales to those customers roughly flat versus the prior year. The headwinds we've seen from this group are largely behind us and we should go forward on even footing. At MonotaRO, sales growth remained strong with enterprise customers coupled with solid acquisition and repeat purchase rates with small and mid-sized businesses. On a reported basis, these results were partially offset by foreign exchange as the yen continues to be a year-over-year headwind. On profitability, the operating margins for this segment increased 130 basis points to 8.8% with both businesses contributing leverage year-over-year. MonotaRO margins remained strong at 12.4% with DC operating efficiency driving continued year-over-year improvement. At Zoro, operating margins were up 120 basis points to 4.3%, aided by solid operating leverage and a favorable one-time reserve true-up of roughly 70 basis points. These items more than offset an increase in marketing spend. Overall, we're encouraged by the strong progress we've made across the segment and remain on track to finish the year at or above our original expectations. Now moving to the updated outlook for the full year of 2024. As D.G. mentioned at the beginning of the call, while the market has remained muted, results have largely played out as expected for the year. With this, we're narrowing our full year 2024 earnings outlook. The narrow guide includes daily organic constant currency sales growth of between 4.5% and 5.25% and a diluted adjusted EPS range of $38.65 to $39.35. The updated revenue outlook implies a fourth quarter 2024 daily organic constant currency growth rate in the mid-single digits, which includes month-to-date growth in October of approximately 6.5%. This preliminary daily organic constant currency sales growth rate for October includes roughly 200 to 250 basis points of hurricane-related sales, meaning normalized month-to-date results are closer to 4% and 4.5%. Our operating margin expectations haven't shifted much from our prior guide. If you were to squeeze the operating margins from the updated annual guide, it implies a seasonal sequential step down in the fourth quarter to just above 15% at the midpoint. Supplemental guidance has also been updated, including an increase of $150 million to our operating cash flow outlook at the midpoint. As a note, we've lowered our full year 2024 tax rate assumption to approximately 23.2% or 80 basis points less than the prior guide, which implies our fourth quarter tax rate somewhere between 20% and 21%. This reflects anticipated favorability in the fourth quarter as we adjust audit reserves from prior year tax returns and execute various tax planning strategies. Full-year foreign exchange rates have also been updated in the revised outlook. Overall, the year has played out largely as expected and our updated earnings guidance remains within the original ranges we communicated at the beginning of the year. We look forward with confidence in finishing the year strong. With that, I'll turn it back to D.G.
Donald Macpherson: Thanks, Dee. Before I open it up for questions, I'd like to recognize the Grainger team on earning another notable workplace achievement. Earlier this week, we were named the top ranked company across all industries on the American Opportunity Index, which primarily focuses on the experience of workers in non-college degree roles and the company's ability to offer them growth and development no matter their career path. The index measures the career trajectories of 5 million employees at 400 of America's largest companies via publicly available data. In other words, it's all about the facts, not a submission or a survey, so it's completely objective. This ranking is a testament to our culture, most importantly, our commitment to ensuring every team member can have a meaningful and fulfillment career here at Grainger. We are honored to receive this recognition. With that, we will open up the line for questions.
Operator: [Operator Instructions] And our first question comes from Ryan Merkel with William Blair. Please state your question.
Ryan Merkel: Hi, everyone. Thanks for taking the questions. I wanted to start, D.G, with the Endless Assortment growth rate really stood out to me this quarter. It was a nice acceleration from what we saw in the first half. Is there anything you'd point out company-specific or otherwise that really drove that growth a lot higher this quarter?
Donald Macpherson: Yes. So what I would say is that MonotaRO continues to have really good success with enterprise customers and has also made some improvements with small businesses as well. So that has been a continuation of some improvement. And then Zoro, we talked about B2C and B2C-like customers being a headwind, that is really no longer a headwind. They were roughly flat with those customers. And so what you're seeing now is mostly the strong business-to-business growth, which was strong last quarter and strong this quarter. So the results are much improved.
Ryan Merkel: Got it. Okay. And then on the fourth quarter, nice start to October. I'm just curious, are you assuming the macro really just stays the same? And then in November and December, should we assume that the hurricane bump of 2%, 2.5% falls off or is that unclear?
Donald Macpherson: I think on both of those, we would say, yes, we would agree with you that macro stays the same and then the hurricane bump falls off in the November-December timeframe.
Ryan Merkel: Thank you.
Operator: And our next question comes from Jacob Levinson with Melius Research. Please state your question.
Jacob Levinson: Hi, good morning, D.G., Dee.
Donald Macpherson: Good morning.
Deidra Merriwether: Good morning.
Jacob Levinson: I think it's been quite some time since we've had, at least for you folks, such a sluggish macro backdrop and you're still spending -- understandably spending quite a bit of money on demand-generating investments. I guess, trying to understand how do you -- how do you kind of balance that investment spend when you're trying to manage growth in this type of environment versus holding a line on margins?
Donald Macpherson: Yes. So I think the simple answer, of course, is if something on demand generation is worth spending in good times, it's probably worth spending in bad times, you may adjust the levels depending on sort of the market growth, but we'd still expect to spend in areas that we think are going to create long-term advantage for us and help us grow. I think the most important thing to do is to make sure that in all the core areas of the business, we continue to drive productivity. So we have a lot of core operations. We are very much an operation-intensive business and making sure that we're consistently getting productivity in those parts of the business and we've worked on that in the past and continue to work on that going forward is really critical to make sure that you're able to continue to invest in those demand-generating activities.
Jacob Levinson: Okay. That makes sense. And then just quickly on the balance sheet. You're -- I think you're sitting on the largest cash value you've had since maybe the height of the pandemic area. The balance sheet leverage is pretty low. Obviously, the stock has had a pretty phenomenal run at this point, but can you just give us a sense of how you're thinking about your balance sheet options at this point, whether it's buying back stock or even if there are M&A bills out there on your radar?
Deidra Merriwether: So thanks for the question. And if you look at our cash balance over the quarter, we did increase cash meaningfully, because we closed on our new $500 million bond offering, which we'll use to paydown senior notes early in 2025. And if you pull that to the side, it's important to note that the pace of our cash growth really over several years has been in line with our sales growth. And when you look at the excess cash that we do have and look at our capital allocation strategy, we don't envision any changes to that strategy and we will most likely return that cashback to shareholders in the form of share repo. And if you look at our guide -- updated guide for the end of the year, you can see that represented in that number.
Operator: Thank you. And our next question comes from Sabrina Abrams with Bank of America (NYSE:BAC). Please state your question.
Sabrina Abrams: Hi, good morning.
Donald Macpherson: Good morning.
Deidra Merriwether: Good morning.
Sabrina Abrams: I would -- I just want to ask about the self-help initiatives to gain share in HTS between -- you mentioned the marketing, seller headcount, just looking to understand the traction, anything going particularly well? Anything you're looking to improve on? And just early thoughts on expectations for 2025 in terms of the outgrowth? Thank you.
Donald Macpherson: Yes. So I'll start and then Dee may add on to this. But basically what we are doing broadly is leveraging our proprietary data and product information and customer information to provide better solutions, whether that's in marketing, where we get more refined and how we market the customers or whether that's in merchandising where we look to make sure that the website is easier for customers to navigate or add products. And then we also are leveraging some of that customer information to improve seller coverage. So we have continued to add sellers this year at a relatively modest rate, but a consistent rate. And all of those are showing very strong returns and continues to show strong returns. Our expectation is that they will continue to show strong returns into next year as well. We won't update our market expectations for 2025 until after fourth quarter earnings. It's probably safe to say that 2025 will start similarly the way 2024 ends. That's usually the way it works. So probably be muted to start the year. But in any case, we are going to continue to invest in leveraging our data assets to provide better customer solutions and better outreach through marketing through coverage, through merchandising.
Deidra Merriwether: And the only thing I'd add, Sabrina, is that we still are targeting from the collective investments in demand generation to outgrow the market by 400 to 500 basis points. And as I noted in our prepared remarks, we are in a period where we do have some dislocation versus our headline IP and PPI metrics. However, when we continue to internally test the return on those investments, those investments are still returning as we would expect. And there still is really a lot of noise. I would say if you look at market surveys, other competitive results or other economic data points related to what volume really is, we believe are actually muted and we are performing fairly well versus the competition.
Sabrina Abrams: Okay, great. Thank you guys. And then just a follow-up. I think you mentioned price cost was neutral in the prepared remarks. Do you feel you need to take incremental pricing actions following the May 1st price increase or do you sort of feel you've taken the appropriate measures for the levels of inflation we are at right now?
Deidra Merriwether: So yes, we did take an additional increase in September. As you know, versus where we expected price to be at the beginning of the year versus where it appears it's landing and based upon 70% of our business in High-Touch being contract-related, we've had to kind of chase to catch-up on some of that. And so our goal would be, as you noted, to exit the year price cost neutral and we are in line with that. Now we're right in the midst of our cost cycle with our suppliers heading into 2025. And as D.G. noted, really not ready to disclose where we think that will head, but we do have a philosophy, of course, as a distributor of passing on cost inflation through price to our customers since we sell on value and we don't expect that to change in 2025.
Operator: Thank you. And our next question comes from David Manthey with Baird. Please state your question.
David Manthey: Thank you. Good morning.
Donald Macpherson: Good morning.
David Manthey: My question is, on Slide 9, essentially you're saying the disconnect between your sales and industrial production is just inflation, I guess, or deflation. And so the third quarter '23 share gains might have been overstated while the third quarter of '24 are understated. Is that what you're saying?
Donald Macpherson: No, no. We think that the third quarter of last year was probably stated correctly. What we're seeing right now is the way we calculate share gain is based on IP and based on market price increases as well. And as we look across different other performance indicators, market surveys, competitor results, economic data points, we think we're performing quite well right now. And so we think that the share gain number we're quoting isn't necessarily reflecting all reality. And so in any case, we expect that dislocation to correct itself over the long-term and we'll continue to gain 400 basis to 500 basis points on average annual market growth.
David Manthey: Okay. And then D.G., if I'm trying to square up Slide 19 with Slide 9. 19 as maybe a lens of the U.S. commercial industrial economy that it looks like steady deceleration in most of those categories. And so I'm just trying to understand that relative to you saying the MRO market is kind of steady right now. Is that just Grainger comps that's influencing that or how should we think about 19?
Donald Macpherson: So we would say that the demand trend has been pretty consistent most of this year. You see some fluctuation. Warehousing is up as an example, but certainly things like heavy equipment is down right now. So there are puts and takes. Net-net, it's not a huge change from the beginning of the year to now, but it's been pretty slow growth all year, I would say.
Operator: Thank you. And our next question comes from Tommy Moll with Stephens. Please state your question.
Tommy Moll: Good morning, and thank you for taking my questions.
Donald Macpherson: Good morning.
Deidra Merriwether: Good morning.
Tommy Moll: So you mentioned that the year is playing out largely as expected. And I was curious if we go one layer deeper just in terms of the pricing versus volume trends. Would you say the same for each of those, or are there may be some offsets where pricing maybe is coming in a little bit better than expected, volumes a little bit weaker, or the reverse of that?
Deidra Merriwether: Yes. Market price, as you noted, has been fairly resilient all year. Now for us, as I kind of talked about in a prior question, we started off the year pricing fairly light versus what has actually occurred and have been pulling through price as appropriate while we're still maintaining price competitiveness. From a volume perspective, I think the market is closer to right there. And if you look at those components, it's like flat to down on volume. And as you can kind of see in the U.S., we have actually grown volume positively. I've been around here for about 11 years and when I looked at IP and PPI over time, you'll get to the next year and it does a really good look-back and makes a lot of corrections. When we look at what D.G. kind of talked about, other surveys or other metrics, it feels like those corrections will be to the downside as we look back at 2024 and that's what all of our data as it relates to our AB testing and a lot of our pre- and post-testing on our investments are telling us.
Tommy Moll: And sticking on the market-share theme, are there any anecdotes you could share just on competitive contract wins or things you're seeing in the business that you're winning every day that would also corroborate what you're communicating in terms of the share capture?
Donald Macpherson: Yes. Well, I think the easiest one is just to look at sort of revenue growth across all the competitors to get a sense for that. I would say from a customer input I've been with a lot of customers last couple of months and generally, there's no panic we're -- and we are viewed as adding a bunch of value to their business. And I think we're doing all the right things and winning contracts and of course, losing some as always. But generally, the customer interactions feel pretty good right now in terms of how they view some of the value that we're creating.
Operator: Thank you. And our next question comes from Patrick Baumann with JPMorgan (NYSE:JPM). Please state your question.
Patrick Baumann: Hi, good morning. Thanks for taking my question. Maybe first, I was wondering if we could talk a little bit about KeepStock. It feels like it's not something that's come up in a while, not because you haven't had success there, I think. I think it's been growing nicely, but maybe you could provide some perspective on how big it is now in terms of the High-Touch segment, what type of growth you're seeing? And any thoughts on that announcement from Amazon (NASDAQ:AMZN) around like the Amazon Business Restock program, like where might they be trying to go after customers in terms of vending, in terms of inventory management? It just seems like they're moving to a higher touch offering than historically. Wondering if you had any thoughts on that at all. I know it's early, so I think that you might not.
Donald Macpherson: Yes, no, so KeepStock continues to grow faster than the business on the whole. A large majority of our revenue volume comes from customers that have some sort of KeepStock installation as well. So you can track it sort of the volume through KeepStock, which would be probably high-teens or something like that. But you can also track it in terms of how many customers, the total revenue half that KeepStock installation and there's a lot of them. What I would say is that doing KeepStock well requires, particularly in the spaces that we operate in, understanding dirty places in manufacturing plants and making sure you locate them right. And there's a lot of work that goes into that, consulting, having the right industrial products and getting them to customers quickly and being able to stock bins and make sure we're at the right locations within a plant. And so we don't know everything about the Amazon announcement, but it's pretty simple to get vending going, which is what they're talking about doing. And I think they're planning to use third-party as they announce to stock. We don't know how that will play out, but we feel pretty confident in our ability to provide a lot of value on the platform.
Patrick Baumann: Thanks for the color. And then maybe one for Dee. On the gross margin outlook for the fourth quarter, I'm squeezing into something that's higher sequentially than the third quarter and would be up nicely year-over-year. Just wondering if I'm doing the math right. And if so, what's driving that and if that's right, like should we expect gross margin expansion in '25? It just seems like a nice exit rate for the year.
Deidra Merriwether: Yes. Maybe I point you to like sequential versus year-over-year. And the price cost, which kind of came up, we were expecting to end the year a positive, mainly due to supplier rebates. That's going to definitely help us. We do have some business unit mix offsets to that and a little bit of freight. But net-net, on a sequential basis going from Q3 2024 to Q4 2024, we do expect to expand gross margins. Since we're not talking about 2025 outlook, like I noted earlier, we're in the midst of our contract negotiations on COGS and of course, watching market pricing. But as D.G. noted, we expect the first quarter or the first half to look a whole lot like we're ending this half and that has been price moderating -- continuing to moderate a bit since we've exited the pandemic. So I don't see it being particularly strong in 2025, but do feel like there will be some price in the market.
Operator: Thank you. And there are no further questions at this time. I'll hand the floor back to D.G. Macpherson for closing remarks.
Donald Macpherson: All right. Well, thank you. Thanks for joining our call. Really appreciate it. As we discussed, we think we continue to perform well in a certainly muted demand environment, but we're really confident in the things we're doing and feel good about the way the company is moving. And we're going to continue to execute on the things that really matter. Appreciate the time. Have a safe and fun Halloween if you're into that and we'll talk to you next quarter. Thank you.
Operator: Thank you. This concludes today's call. All parties may disconnect.
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