W.W. Grainger, Inc. Q1 FY2020 Earnings Call

Good morning. Welcome to Grainger's first quarter 2020 earnings call. With me are D.G. Macpherson, Chairman and CEO; and Tom Okray, SVP and CFO. As a reminder, some of our comments today may be forward-looking. Actual results may differ materially as a result of various risks and uncertainties, including those detailed in our SEC filings. Reconciliations of any non-GAAP financial measures with their corresponding GAAP measures are found in the tables at the end of this slide presentation and in our Q1 press release, both of which are available on our IR website. This morning's call will focus on adjusted results for the first quarter of 2020, which exclude restructuring and other items that are outlined in our press release. Now I'll turn it over to D.G.

Thanks, Irene. Good morning, and thank you for joining us today. I'll begin with an overview of our actions and experiences in response to the COVID-19 pandemic, as well as an overview of the quarter. Then Tom will get into more specifics about our financial response to the pandemic, as well as detailed information on our Q1 results. Before we start, I want to thank our 25,000 team members across the globe, who continue to live our principles and are working hard to achieve our purpose to keep the world working. We are an essential business supporting hospitals, governments, first responders, food manufacturers, distribution companies and many others that are fighting this fight on the frontlines. These are incredibly stressful times for all. From our team members who are onsite with our customers helping them work through day-to-day challenges, to those ensuring orders are picked, packed and shipped properly, I am proud of the work we are doing to keep our team members, customers and communities safe. I am also thankful for our supplier and logistics partners’ efforts to help us provide much needed products to our customers in this desperate time of need. To make this come to life, I thought I would share a photo I received from one of our leaders at a branch located in Brooklyn, New York. This particular branch and its cross-borough partner in Maspeth, they are both situated in between a number of hospitals that are the epicenter of the pandemic fight. Each day, the teams at both locations dutifully come to work, hang the American flag and roll up their sleeves, and in their words, they do this to keep America running. It's this spirit that inspires me, makes me truly proud to lead this company and gives all of us hope in our ability to get through this crisis. Turning to Slide 5. Let me provide you with some color on the actions we have and continue to take in response to the pandemic. The biggest concern right now is our collective health and well-being. As a business, this is our absolute number one priority. When we look back on this crisis, it is how we will all be judged. With health as a primary focus, we have established three priorities during this challenge. First, we must continue to service our customers well. These are the customers that have so much to do with supporting the healthcare system and other critical industries in the U.S. and other countries in which we operate. Second, we must support team members by providing a safe environment and as much job continuity as possible. During this period, everyone is scared and we are trying to provide team members stability and safety. And third, we must ensure that we remain in a strong financial position in order to execute on our first two priorities and remain positioned to thrive when we move beyond this pandemic. We have and will continue to ground our decision-making process, with these three objectives in mind. Starting with the first, Grainger has been designated an essential business for all our locations around the globe, allowing us to continue to serve our customers and live out our purpose. In many cases, we are working side-by-side with hospitals, state and local governments and critical manufacturing businesses to ensure that they can keep doing their critical work. This has been a challenging period. The virus has created significant supply-demand imbalances for PPE and other products, creating substantial challenges for our customers. We've had to make some tough choices about prioritization and the challenge will continue into the near future. But our team is working very hard to find solutions to help our customers. In some cases, this has meant being creative with product solutions in the short-term. We continue to be a valued partner to all our customers even as we prioritize the healthcare system. We started planning and responding to the pandemic in late January and established an emergency preparedness task force shortly thereafter. In the early days, our focus was on product supply. We executed large pre-buys of non-pandemic product, leveraging our extra capacity in Louisville to ensure we could supply our customers through this period. Our service levels of non-pandemic supplies continue to be strong. As it became clear that the pandemic would have a significant impact on all developed markets, we developed business continuity plans following guidance from the CDC, the Public Health Agency of Canada, the World Health Organization and federal and state governments. In many cases, we are going beyond that guidance, including temperature screening of all individuals prior to entering Grainger facilities. We have taken a number of preventative steps to protect our team members and customers, including minimizing exposure of affected team members to other team members and customers, augmenting the cleaning procedures at our facilities, introducing mandatory curbside service at all our branches, providing personal protective equipment for team members working onsite with customers, and mandating work-from-home for all our team members who are able, including our phone service and technical support agents. We were able to pivot quickly to work-from-home for team members who are able to do that and we have not missed a beat. In addition, we moved our National Sales Meeting to a virtual meeting after canceling the conference in Florida. We appreciate the flexibility our team members have demonstrated as we implement these solutions. Throughout this, I continue to receive many letters and calls of thanks from customers and I am inspired with how the Grainger team is taking care of our customers and each other during this challenging time. I have also received many calls from customers who need solutions that we and no one else can fulfill right now. Stress in the system is extremely high, as you might imagine. On the supply chain front, our world-class supply chain has remained resilient. As I mentioned, we have had minimal disruptions to date on non-pandemic related items. We continue to maintain high levels of inventory and are leveraging our strong relationships with our suppliers and transportation partners to secure products and ensure we meet our same-day ship complete delivery promise as regularly as possible. Like others around the globe, we continue to see shortages and stock-outs of critical pandemic-related items, including N95 masks, sanitizers and other PPE. We are working diligently with our suppliers, alongside our government and healthcare customers to secure as much product as possible, as well as trying to identify and source suitable alternatives. To give you a sense of the magnitude of the problem, in several weeks' time, we received orders for the same quantity of safety masks that we usually receive over several years, and in some cases, even decades. This is truly an unprecedented challenge and getting America back to work is essential. Let me assure you that Grainger is holding true to our values. We will continue to work with customers and supplier partners to find the best solutions on all pandemic products, we are honoring our contracts and did not raise prices, unless necessary, to recover our increased costs. Moving to our second priority, we are committed to making decisions with team members' best interest in mind. Grainger is a sound business with a longstanding belief in the need to have a stable workforce to serve customers and keep the world working. When we emerge from the pandemic, we want to ensure that we are well positioned with an experienced team to accelerate growth through the recovery. While we don't yet know the full financial impact of COVID-19, we have contingency plans in place for any eventuality. In the short term, we have furloughed a small portion of our workforce and reduced hours for others. In both cases, with the enhanced CARES Act, we are focused on keeping our team members as close to whole as possible. Beyond this, we have delayed merit increases for salaried employees and have instituted short-term pay cuts for executives. Our incentive plans will adjust based on market conditions. Our goal is to keep our team members employed over the long haul, treated fairly and working during this time. Our third priority, which Tom will cover in detail, is around maintaining our financial strength. In short, we are well positioned with an exceptionally strong balance sheet and a robust liquidity position. We are prepared for a multitude of scenarios and have already implemented changes focused on cash flow in the near-term. Our strong financial position should enable us to withstand even the most challenging economic and market environments, while allowing continued investment through the cycle. Stepping back, these three objectives do naturally create some tension. As you can imagine, given the size of our workforce, we have had cases of COVID-19 within our facilities. In each case, team members' safety is our top priority. That means we have had to shift volumes across our network as we temporarily closed buildings to deep clean the facility and quarantine any exposed team members. We are also paying DC branch and KeepStock team members a ship premium, recognizing their great work and commitment during this challenging time. As a result, we are running at higher unit costs than normal in our DCs and elsewhere to ensure we serve our customers to our high standards and help get America and the world back on its feet. Lastly, and before we move on, given the uncertainty around the depth and duration of this pandemic and the related economic response, we are suspending guidance for 2020. As you might imagine, we have customers that are completely closed. We have customers that are operating under reduced volumes. We have customers operating normally. And we have customers who are running 24/7. With all these moving pieces, it doesn't make sense to forecast in this environment. While we can't guarantee the future, we've weathered storms in our long history before and have already started planning for the recovery whenever it may come. This will require us all to think differently as we and our customers are changed by this pandemic. There is a lot to learn and I believe much opportunity ahead. As we move forward, we will continue to evaluate all actions to ensure we are meeting our priorities to serve our customers, support our team members and ensure we remain in a strong financial place. Turning to our quarterly results. We delivered strong topline growth in the quarter, while navigating through this period of uncertainty. We achieved daily sales growth of 5.7% underpinned by traction on our growth priorities and heightened sales of pandemic related items. In the U.S. segment, we outgrew the MRO market by approximately 700 basis points. Excluding estimated pandemic-related sales, which is inherently messy calculation, we were in line with our goal of 300 basis points to 400 basis points of outgrowth versus the market. So we had a strong topline outcome. Operating margins were pressured by factors including the timing of certain SG&A investments, pandemic-related mix impacts, business unit mix impacts as well as the timing of year-over-year pricing and cost actions. Tom will cover the details in a bit. We produced strong cash flow in the first quarter, including $244 million of operating cash flow and $194 million of free cash flow and finally, we continue to make progress on our 2020 priorities. Our remerchandising efforts continued in the quarter as we work to further improve product and search information. We continue to improve the efficacy of our marketing initiatives. Our endless assortment business grew 17% underpinned by resilient performance at MonotaRO and SKU additions at Zoro. Masaya Suzuki, our new leader of the endless assortment portfolio and his team are implementing the MonotaRO playbook across Zoro and are closely looking at a number of areas for improvement, most notably around discounting strategy and other opportunities to improve profitability. Our turnaround efforts in both Canada and Cromwell performed in line with our expectations despite turbulent market conditions. And while we have curtailed non-essential spending in certain areas, we will continue to invest where it matters most. Most importantly, we continue to improve the user experience in our core businesses with customer feedback coming in extremely strong. As we look forward, we will focus on what we can control and make decisions based on facts. The business is well positioned to sustain through this pandemic and I am confident we will come out stronger on the other side. With that, I will turn it over to Tom.

Thanks, D.G. As D.G. mentioned, we have established three broad priorities that are serving as the backbone as we work through this unprecedented challenge. Our third decision-making tenet is to ensure we remain on a strong financial footing. In this regard, we have taken several actions to bolster an already strong financial position. From a balance sheet perspective, in the quarter, we increased the size of our revolver to $1.25 billion and executed a large scale refinancing. Combined, these initiatives increased our available liquidity by roughly $625 million and eliminated all material near-term maturities. At the end of March, we proactively tapped $1 billion of the $1.25 billion revolving credit facility. As noted by our strong balance sheet and operating cash flow results, this was done solely out of an abundance of caution. In this low rate environment, it's an inexpensive insurance policy. Further, with the refinancing, we consolidated a majority of our foreign currency denominated debt, which pushed out any material maturities until 2025. Our revolver does not contain any financial covenants and we continue to have strong A category ratings from both S&P and Moody's. All in, we exited the quarter with over $1.7 billion in available liquidity, including $1.5 billion in cash and only a 1.2x net debt leverage ratio. When it became clear that we might be facing a serious economic downturn, we proactively began implementing initiatives that conserve cash and optimize profitability. To be clear, the initiatives strike a balance between short-term cost and cash savings and ensuring we come out of the gates strong when the crisis ends. Examples of these baseline initiatives include temporarily furloughing team members to align with reduced volumes, short-term pay cuts for executives, delaying merit increases for our salaried workforce in North America, reducing outside professional service spend, scaling back advertising spend, eliminating non-essential travel and delaying hiring decisions. We expect these baseline initiatives and the lapping of certain Q1 items will create $40 million to $55 million of sequential cost savings in the second quarter of 2020, even when accounting for an increased level of cost to support our pandemic response. We have also identified several additional initiatives that can be implemented depending on volume levels. We are staying nimble and monitoring sales trends, cash position, and working capital closely. Additionally, we are deferring certain discretionary capital expenditures and now expect our full-year 2020 CapEx spend to be between $150 million and $175 million. This is down from our previous expectation of $250 million. With respect to working capital, we are working closely with our customers and suppliers to maintain our strong relationships, while ensuring a manageable cash conversion cycle. To date, we haven't seen a material change in delinquencies or bad debt. Further, we remain committed to returning excess capital to our shareholders. However, to preserve financial flexibility, we have paused our share repurchase program. As for the dividend, we remain committed to the program and do not currently foresee where we would reduce or suspend its payment. We understand the importance of achieving our 49th consecutive year of dividend increases. While it's difficult in this environment to forecast the future, from a cash perspective, we have modeled multiple scenarios that reflect varying depth and duration cases of volume loss. Given what we are able to see now, we are confident that we will have adequate liquidity to support our business operations through this pandemic. We have a strong reputation of managing well through difficult times and we expect this crisis will be no different. Based on what we know today, we are confident that we will emerge from this pandemic as a trusted partner to our customers and suppliers and are well-suited for the recovery. As we turn to our detailed quarterly results and think about the financial impact that COVID-19 pandemic has had on our business, it's very challenging to specifically quantify. There are numerous moving pieces, including sales of pandemic-related SKUs, determining substitute products, impact of customer capacity cuts or closures and identification of customer pre-buying. All of these combined makes it challenging to pinpoint the specific impact of the pandemic on our financials. Therefore, as I go through our financial results, I will share estimated directional commentary on the impact. As noted on Slide 9. For the total company, daily sales were up 5.5% in the quarter, 5.7% on a constant currency basis. This was driven by around 7% increase in volume offset by an approximately 2% headwind from price. Roughly half of the price headwind is due to product and customer mix with the other half related to lapping of the 2019 price increase. For the total company, we estimate the pandemic-related product sales represented roughly half of our sales growth. Additionally, for perspective, it should be noted, our core U.S. and endless assortment businesses combined grew at 7.3% on a daily basis during the quarter. Gross profit margin for the total company was down 180 basis points versus the prior year quarter. This decline is driven by customer and product mix headwinds and our U.S. segment largely related to sales of pandemic-related items as well as business unit mix from higher growth in our lower margin endless assortment business.

I will turn it back to Tom.

Thanks, D.G. So let's first of all start with gross profit margin. As we said in our prepared remarks, we went heavy on pricing in Q1 of fiscal year 2019 and then we rolled that back throughout the year. So to your point, that pricing compare will get better throughout the year. Also from a cost perspective, if you just look at how the tariffs behave on a year-over-year basis, the two big tariffs for us are Part 3 and Part 4A. And from a year-over-year impact for Part 3, in fiscal year 2019, the tariff was 10% in Q1, it's 25% in Q1 this year. If we look at 4A, there was no tariff and there's 15% or 7.5%. So that is the tariff impact that we saw on Q1. That also will get better throughout the year as we fully realize the lapping of our tariffs. It will also get better from the realization of our non-tariff cost increases. Let me move to SG&A and unpack it a little bit better than we did in the prepared remarks. We were up $47 million on a total company basis, which is a 6.4% increase. If you do look at the one-time items and that includes, one-time legal matters, the extra payroll day. We also had some benefits issues where we were lapping prior year adjustments and some other one-time costs. D.G. said over 50%, it was actually closer to 60% of the $47 million. So if you adjust that out, we really grew 2.7%, which gets into about half of the sales growth. The increase of the 2.7% is on items where we have said that we are investing related to advertising, technology and adding headcount in the back half. Now having said that, we noted in the prepared remarks that we are scaling back on advertising, we are taking a stronger look on costs in terms of taking $40 million to $55 million out sequentially versus Q1. And then the final thing I’ll say is I want to be clear that we did also have additional cost to serve the pandemic in terms of overtime pandemic pay, cleaning supplies, and those types of items. But the big story in SG&A is the one-time as well as the investment cost, which we will roll back in the second quarter.

Thank you. Our next question is coming from David Manthey of Baird. Please go ahead.

Hi. Good morning, everyone. Grainger used to give us growth ranges across customer end markets on a monthly basis. And just given the circumstances, is there any chance that we could get general growth rates for March across the end markets on Slide 17?

We'll get back to you on that. It might be more valuable to give you ranges on April frankly than March.

Yes. That's fair. I thought I'd ask. All right. And then second, I was hoping SG&A was going to offset the decline in gross margins quarter a little bit better. I know you talked about it a little bit, but just pinpoint for us what exactly happened? It seems to me like you're not making much profit on these pandemic sales, so maybe talk about that. And then, is most of this a timing issue with the price cost and the higher SG&A? And then these trends should start to get a little bit better in 2Q? Just help us with that.

Yes. So let me take – I mean, so there's a gross profit and SG&A component to your question. And I'll turn it over to Tom in a minute. From a gross profit perspective, on the pandemic items, we made a decision, which is we're going to help the healthcare infrastructure and help government customers. That decision means, in a scarce supply world, we're basically providing product to contract customers and those products generally are lower margin to begin with. So that does have an impact on gross profit and a fairly significant one in the quarter. It’s the right thing to do. It's absolutely the right thing to do. That's going to relieve over time a little bit because there's going to be more product and there's going to be more customers hopefully that open up and that we can serve. So on the gross profit side, that certainly was an impact, which we'll see in the second quarter. But I think over time that will relieve some. SG&A is a little bit simpler. Over half of our SG&A increase was basically one-time or unusual items. And we feel like growing SG&A half the rate of sales growth is a very comfortable place for us to be going forward given what we know other than the one-timers. I'll turn it over to Tom to provide a few details on that one.

Yes. So let me add just a little bit more color, Ryan. So let's first of all start with gross profit margin. As we said in our prepared remarks, we went heavy on pricing in Q1 of fiscal year 2019 and then we rolled that back throughout the year. So to your point, that pricing compare will get better throughout the year. Also from a cost perspective, if you just look at how the tariffs behave on a year-over-year basis, the two big tariffs for us are Part 3 and Part 4A. And from a year-over-year impact for Part 3, in fiscal year 2019, the tariff was 10% in Q1, it's 25% in Q1 this year. If we look at 4A, there was no tariff and there's 15% or 7.5%. So that is the tariff impact that we saw on Q1. That also will get better throughout the year as we fully realize the lapping of our tariffs. It will also get better from the realization of our non-tariff cost increases.

Thank you. Our next question is coming from David Manthey of Baird. Please go ahead.

Hi. Good morning, everyone. Grainger used to give us growth ranges across customer end markets on a monthly basis. And just given the circumstances, is there any chance that we could get general growth rates for March across the end markets on Slide 17?

Well, I think it's – as Tom said, forecasting right now is very difficult. I think we can say what we are seeing. And as I mentioned, we have some customers that are mostly shutdown. We do a lot of work with airlines, which obviously, aren't as busy, cruise lines, as you might guess. As you get into some of the sub-industries, you see very big differences. Obviously there's a bunch of customers that are very, very busy. I think one thing I would say is that the world is not shutdown necessarily and you can see it in our daily volumes. We've been very consistent in the last few weeks and we've been fairly resilient. But it does take on different numbers by different sub-segments. I think the question for us is how long it's going to take to get back and depending on who you talk to, whether it's an epidemiologist or an economist, that could be relatively short or really long. And so there's just uncertainty around that. So Ryan, I would not even try to forecast that. We feel like we are taking the right actions to make sure that we maintain profitability throughout any scenario and we are confident in our ability to gain share. One thing that we didn't talk about, that's kind of interesting is we are seeing a very healthy flow of new customers, given the pandemic requests and we feel like we are going to come out of this with a nice customer file increase as well. But right now, it's really difficult to forecast beyond sort of this month and next month, and it will just be how fast back to work that's going to determine.

Yes. That's fair. I thought I'd ask. All right. And then second, I was hoping SG&A was going to offset the decline in gross margins quarter a little bit better. I know you talked about it a little bit, but just pinpoint for us what exactly happened? It seems to me like you're not making much profit on these pandemic sales, so maybe talk about that. And then, is most of this a timing issue with the price cost and the higher SG&A? And then these trends should start to get a little bit better in 2Q? Just help us with that.

Yes. So let me take – I mean, so there's a gross profit and SG&A component to your question. And I'll turn it over to Tom in a minute. From a gross profit perspective, on the pandemic items, we made a decision, which is we're going to help the healthcare infrastructure and help government customers. That decision means, in a scarce supply world, we're basically providing product to contract customers and those products generally are lower margin to begin with. So that does have an impact on gross profit and a fairly significant one in the quarter. It’s the right thing to do. It's absolutely the right thing to do. That's going to relieve over time a little bit because there's going to be more product and there's going to be more customers hopefully that open up and that we can serve. So on the gross profit side, that certainly was an impact, which we'll see in the second quarter. But I think over time that will relieve some. SG&A is a little bit simpler. Over half of our SG&A increase was basically one-time or unusual items. And we feel like growing SG&A half the rate of sales growth is a very comfortable place for us to be going forward given what we know other than the one-timers. I'll turn it over to Tom to provide a few details on that one.

Thank you. Our next question is coming from David Manthey of Baird. Please go ahead.

Hi. Good morning, everyone. Grainger used to give us growth ranges across customer end markets on a monthly basis. And just given the circumstances, is there any chance that we could get general growth rates for March across the end markets on Slide 17?

We'll get back to you on that.

Yes. That's fair. I thought I'd ask. All right. And then second, I was hoping SG&A was going to offset the decline in gross margins quarter a little bit better. I know you talked about it a little bit, but just pinpoint for us what exactly happened? It seems to me like you're not making much profit on these pandemic sales, so maybe talk about that. And then, is most of this a timing issue with the price cost and the higher SG&A? And then these trends should start to get a little bit better in 2Q? Just help us with that.

Yes. So let me take – I mean, so there's a gross profit and SG&A component to your question. And I'll turn it over to Tom in a minute. From a gross profit perspective, on the pandemic items, we made a decision, which is we're going to help the healthcare infrastructure and help government customers. That decision means, in a scarce supply world, we're basically providing product to contract customers and those products generally are lower margin to begin with. So that does have an impact on gross profit and a fairly significant one in the quarter. It’s the right thing to do. It's absolutely the right thing to do. That's going to relieve over time a little bit because there's going to be more product and there's going to be more customers hopefully that open up and that we can serve. So on the gross profit side, that certainly was an impact, which we'll see in the second quarter. But I think over time that will relieve some. SG&A is a little bit simpler. Over half of our SG&A increase was basically one-time or unusual items. And we feel like growing SG&A half the rate of sales growth is a very comfortable place for us to be going forward given what we know other than the one-timers. I'll turn it over to Tom to provide a few details on that one.

Yes. So let me add just a little bit more color, Ryan. So let's first of all start with gross profit margin. As we said in our prepared remarks, we went heavy on pricing in Q1 of fiscal year 2019 and then we rolled that back throughout the year. So to your point, that pricing compare will get better throughout the year. Also from a cost perspective, if you just look at how the tariffs behave on a year-over-year basis, the two big tariffs for us are Part 3 and Part 4A. And from a year-over-year impact for Part 3, in fiscal year 2019, the tariff was 10% in Q1, it's 25% in Q1 this year. If we look at 4A, there was no tariff and there's 15% or 7.5%. So that is the tariff impact that we saw on Q1. That also will get better throughout the year as we fully realize the lapping of our tariffs. It will also get better from the realization of our non-tariff cost increases. Let me move to SG&A and unpack it a little bit better than we did in the prepared remarks. We were up $47 million on a total company basis, which is a 6.4% increase. If you do look at the one-time items and that includes, one-time legal matters, the extra payroll day. We also had some benefits issue where we were lapping prior year adjustments and some other one-time costs.

Let's move on to the other businesses. Daily sales increased 8.5% or 8.8% on a constant currency basis. Growth was driven by continued expansion of our endless assortment business, which was up a combined 17% on a daily basis between both Zoro and MonotaRO. Both businesses continue to grow rapidly and benefited from an uptick in pandemic-related sales albeit a much smaller impact than we saw with our U.S. business.

Yes. If you look at it from a revenue perspective, we've actually got some customer mix component, which is in volume, but the majority of it is going to fall into price. We mentioned in our prepared remarks, the multi-site customers, but that was a much smaller part of the mix component. The primary part of it was our lower margin healthcare and government customers. That was the big driver of the customer mix.

Yes. I would just add to that, Nigel, that we very recently, like the last few days, we started to get inquiries from midsized customers thinking about restarting. They've been on fairly hard shutdown. So that has been a negative mix depending on how fast some of those midsized customers come back. The mix issues could be alleviated a bit. We would expect though for the next – certainly for April, and probably for a lot of May, we would expect some of those mixed pressures, and then hopefully as everybody gets back to work, we would see those does alleviate.

Thank you. Our next question is coming from Christopher Glynn of Oppenheimer. Please proceed with your question.

Thank you. Good morning. Just if we look at Zoro and/or Zoro and MonotaRO, I’m curious about the possibility of a net benefit this year with the online effect actually benefiting from distancing? Or otherwise, if there's maybe a divergent experience of the COVID recession for the endless assortment versus the U.S. segment?

Yes. So I can take that one. So Japan has not had yet a hard shutdown like some of the other markets we've seen. Certainly we've seen the online model there do very, very well. In Zoro, in the U.S., Zoro has done quite well as well. And in particular from a new customer acquisition, as new customers look for different solutions that are digital, we're seeing a very strong new customer pipeline coming into Zoro. We also see a lot of that going on to the Grainger online as well from – on grainger.com. So there is certainly a shift to digital and we think we're well positioned for that shift, both with assortment model, but also with grainger.com, which is an exceptional solution for industrial businesses. So we feel like we're well positioned for that shift.

Thanks, D.G. As D.G. mentioned, we have established three broad priorities that are serving as the backbone as we work through this unprecedented challenge. Our third decision-making tenet is to ensure we remain on a strong financial footing. In this regard, we have taken several actions to bolster an already strong financial position. From a balance sheet perspective, in the quarter, we increased the size of our revolver to $1.25 billion and executed a large scale refinancing. Combined, these initiatives increased our available liquidity by roughly $625 million and eliminated all material near-term maturities. At the end of March, we proactively tapped $1 billion of the $1.25 billion revolving credit facility. As noted by our strong balance sheet and operating cash flow results, this was done solely out of an abundance of caution. In this low rate environment, it's an inexpensive insurance policy. Further, with the refinancing, we consolidated a majority of our foreign currency denominated debt, which pushed out any material maturities until 2025. Our revolver does not contain any financial covenants and we continue to have strong A category ratings from both S&P and Moody's.

Thanks, Tom. We have a strong business and balance sheet as well as access to capital and we are taking proactive steps to keep the company healthy and our workforce stable, while continuing to serve our customers well. We take being an essential business very seriously and we are committed to living our purpose and being that critical partner for our customers throughout this pandemic and beyond. While this crisis is certainly different from any that we've experienced, I am confident that Grainger will come away from this stronger than before, and we’ll be positioned to lead this industry for years to come. Now we will open it up for questions.