Greetings and welcome to the W.W. Grainger Second Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded. I would now turn the conference over to our host, Irene Holman, Vice President of Investor Relations. Thank you. You may begin.

Good morning. Welcome to Grainger's Q2 earnings call. With me are D.G. Macpherson, Chairman and CEO; and Tom Okray, CFO. As a reminder, some of our comments may be forward-looking based on our current view of future events. 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 mentioned on today's call with their corresponding GAAP measures are at the end of this slide presentation and in our Q2 press release, which is available on the IR website. Reported results in the second quarter included a $3 million benefit to operating earnings and a $0.03 benefit to EPS primarily related to a reduction in lease obligations in Canada. This morning's call we will focus on adjusted results which exclude the items outlined in our press release. Please also note within our comments we have removed the favorable timing impact of the North American sales meeting from gross profit margin and operating margin. The sales meeting had a positive 20 basis points impact on total company gross profit margin and operating margin and a positive 25 basis points impact on U.S. gross profit margin and operating margin. Now, I'll turn it over to D.G.

Thanks, Irene. Good morning and thank you all for joining us today. I'm going to discuss our first half and second quarter results and share an overview of what we're doing to drive growth in the U.S. and through our endless assortment model. Then Tom will provide details on the quarter, and we'll open it up for questions, The demand environment has softened throughout the year. Having said that, our strategy is grounding -- and grounded and having a value proposition that resonates through economic cycles. Through our high touch solutions model, we provide services and products to customers that help save them money, help them consolidate MRO spend, we manage their inventory, we provide solutions to simplify their purchasing process, we offer product substitution recommendations, we enable standardization across sites, and we help them keep their operations running and their people safe. In times of slower growth, we partner with our customers to lower their costs, which strengthens our relationships. We're confident in our ability to gain share in both up and down cycles with this model. With our endless assortment model customers value are streamlined search experience and expensive assortment. We're investing for growth through this model and are bullish on the path ahead. Turning to our performance so far this year, we delivered strong operating results in the first half of 2019, despite a slower global economy and significant investment in our endless assortment model. Year-to-date total company operating margin was 13%, up 50 basis points, and we've driven incremental margin of 42%. Operating cash flows in the first half of 2019 is up 14%. We’re through much of the heavy lifting on our cost takeout initiatives and are now focused squarely on driving profitable growth through our U.S. and endless assortment businesses. At AGI, the top…

Thanks, DG. Looking at our total company adjusted results for the quarter, sales were up 1% daily and up 2% on a constant currency basis. Volume was up 1.5% and price was up 0.5%. Year-to-date price was up 1%. More perspectives, our U.S. and endless assortment businesses which represents approximately 90% of total revenue were up 5% but were offset by headwinds at AGI and Cromwell. Moving to gross profit, our GP rate declined 35 basis points. The decline in GP rate versus the prior year was primarily driven by the other businesses. We drove operating earnings growth of 5% in the quarter, our operating margin grew 30 basis points versus the prior year due to gross margin in the U.S. Our cost takeout initiative at AGI and cost discipline in the U.S. and at the corporate level. For the quarter, we generated incremental margin of 39%. Operating cash flow was $323 million in the second quarter of 2019, up 30% driven by better operating earnings and favorable working capital versus the prior year period. Now let’s look at our performance in the U.S. As DG mentioned, the demand environment slowed sequentially from Q1 to Q2. Daily sales were up 2% composed of volume growth of 1.5% and price inflation of 0.5%. intercompany sales to Zoro contributed 0.5%, which were completely offset by the decline of specialty brand. Our GP rate increased 10 basis points excluding the remaining contract implementations, price cost spread was neutral. Gross profit margin also included a benefit from supply chain cost primarily related to freight and inventory optimization and positive mix. With respect to the remaining contract implementation, we’re on track to complete this work in 2019 with only 5% remaining. In the quarter, we passed through a majority of tariff and non-tariff related cost…

Thanks, Tom. I would like to close by reminding you of our long-term performance expectations. We expect our initiatives in the U.S. to allow us to grow revenue 300 to 400 basis points faster than the market, on average over the next several years. We believe Canada is an attractive market for Grainger to be in, it can grow faster than the market and be a double-digit operating margin business over the next five years. We expect continued strong growth with our endless assortment models to the strength of MonotaRO in Japan and the investments we're making in Zoro U.S. Overall, we expect to drive strongest SG&A leverage and continued operating margin improvement resulting from incremental margin of 20% to 25%. Now, I will open up for questions.

Thank you. [Operator instructions] Our first question comes from David Manthey with Baird. Please state your question.

Hi, thank you, good morning. Initially you are targeting double-digit growth within the U.S. medium customer set and now we're down the sort of a mid-single-digit growth rate this quarter, you mentioned the fluidity of pricing. I'm just wondering if there's anything you can talk about there as it relates to price refinements to try to re-accelerate the medium customer growth that you've made recently, or you plan to make?

Thanks, Dave. So, we still believe that we can grow midsize customers much faster than the market. We will need to grow them faster than 300 to 400 basis points faster than the markets to be able to hit our overall targets. We have some good signs with our midsize customers. I would say that covered customers have continued to grow very strongly which is a signal that if the customers we've acquired are actually repeating at very strong rates, which is great to see. We feel like we have some efforts initiatives going with merchandising and marketing that can help us accelerate growth. I would point out that pretty new to us to be through the pricing changes and focusing on the midsize customers so we're learning every day what's working and what's not. And we're going to know more as we go forward, but we still feel confident and we can grow significantly though that customers, support pretty all economics of the company.

Okay. And then as it relates to the reduction in the revenue outlook. I would assume that has more to do with your outlook for U.S. market growth just based on percentages than international or internal disruption. But if you run the numbers based on the full year guidance to some extent it might imply flat to lower growth in the market, in the second half of this year and I am just wondering your thoughts on how severe this slowdown might be and is there a recession in your forecasting right now?

Great question, when we talked about a lot. I would say we are certainly not going to forecast a recession and what we see in the market in the U.S. has been slow growth, but pretty stable over the last several months. So, we don't see anything that implies that we are heading off the cliff in the U.S. obviously internationally, there is pockets that are more problematic than others, but in general, we’re not forecasting negative necessarily. We think it's a possibility that probably not a probability at this point.

Thanks, DG.

Thank you.

Our next question comes from Robert Barry with Buckingham Research Group. Please state your question.

Hey guys, good morning.

Good morning.

So, I just wanted to circle back on the price, I mean I think the price flowed from 1.5% in the first quarter to 0.5 in 2Q tariff headwinds they are kind of moving in the other direction. So just curious how you're thinking about tariffs and other inflation and help price might track over the next couple of quarters, kind of vis-à-vis what's happening in tariffs and inflation?

Thanks, Robert. I would say the tariff environment is still a significant uncertainty and we'll see what happens in the next couple months in terms of resolving it or not. Our philosophy is to make sure that we are priced to the market. We will continue to make sure we are priced competitively to be able to serve our customers well and we will take actions to make sure we will get it every day basically to make sure we're priced at the appropriate range. So that's really our philosophy and that's what we're focused on, just some uncertainty as to whether or not the tariffs are going to come through in a bigger way which gives price may go up or not, but our focus is really on making sure market competitive in terms of price.

Got it. I mean just to clarify a couple of things, I mean since the list three didn’t move up, I mean is that going to be a bigger headwind for you in the back half and if you're pricing the market is the fact that the pricing moderated at Grainger mean that what you're seeing in the market, I guess is to like, customers are not getting as much price.

Yeah, we've been planning for the change for quite some time. The way we've got it modeled is it's relatively small, as we said in the prepared remarks, we've been able to realize substantially less than the overall exposure. So, we don't believe that the change and in [indiscernible] is going to be that material for us.

Got it. Could I just clarify one more thing, when you're talking about getting the outgrowth from what I think a point in 2Q to three points in the second half? Is it all these items on slide eight that you think are driving it and are they all just adding like 20 or 30 bps or is there one or two of them that's going to like to drive the lion share of the acceleration?

So, yeah, thanks for asking that. We will provide more detail going forward, how much we expect each to provide. I will say that this is a pretty big shift for us and mindset shift in the sense that we've tracked market share in the past, but we've never targeted market share growth. And we've never had a set of initiatives that we are expecting to align to that growth, at least not explicitly. And we do plan to become more explicit overtime, I gave the example of merchandising in the prepared remarks, which I think is a good one where this is a little bit new to us, we are having to break down some barriers to execute faster and move faster on some things and we're seeing good results. And we do expect that that momentum to continue to build. And so, we'll provide more of the specific details. But know that page eight is pretty important for us right now, I would say.

All right, thank you.

Our next question comes from Christopher Glynn, with Oppenheimer. Please state your question.

Yeah, thanks. Just had a couple questions about the endless assortment strategy, there. The incremental investment you're putting in this year, is that investment in the cost base, or does it tail off next year? And what do you thinking about timeframe for that business to be standalone capable?

Yeah. So that, -- let me get to the last one second, most of the investments that we're making, in terms of getting platform and platform independence should be -- we should be through that by the end of this year. So, we expect some of the costs we've added in terms of analytics and people to stay, but a lot of the cost will fall off next year, as well. In terms of standalone, it'll come in pieces. So, one of the biggest things we're doing is developing the capability for that business to add their own items and they add items from third-party shippers, which will make that business less reliant on Grainger obviously, for the core Grainger items Grainger will still fulfill, but that business will become less directly reliant on the Grainger supply chain overtime. And so that should be -- we're going to implement that system in the third quarter, by the end of the year, we should have that capability. Similarly, the data analytics platform should be complete by the end of the year. So, a lot of this should really be through this year in terms of giving that business more independence. And that's really what we're targeting.

Okay. And then just a follow-up on the medium, if you go a little deeper into what you're seeing in terms of customer retention versus the paid visions, and overall, how is the base holding on from the initial burst of growth there?

So, the basis holding on quite well, as I mentioned, we’ve taken a portion of that base, about half of the midsize customers are now in some sort of coverage model and that has continued to grow at a pretty good clip. So, the base is held on pretty well, and we are acquiring customers, as well, but certainly we're happy with what we see with the base.

Thank you.

Our next question comes from Deane Dray, with RBC Capital Markets. Please state your question.

Thank you. Good morning, everyone. Hey, it was really interesting about what you did not say in your prepared remarks or in your slides, there was no comment about weather and we've seen all kinds of pressures on your peers and you had to have felt some of the same pressures because this was a -- it was an important HVAC opportunity for your filters and refreshing refrigerants and so forth, But it didn't seem to impact you and maybe can clarify what sort of pressures you did see or did not see?

Yeah, I mean, certainly the weather was not helpful, but it is a very small impact to us. It's less than 0.5% impact, so we didn’t call that out as a separate item.

Good. Appreciate that. And then just to clarify and just to make sure I'm clear on this, when you cut the sales high ended guidance, you’ve cut that more than what the market growth cut on the high end, so 3.5 points on your sales, high end so why are you cutting that more, is that all Canada and Cromwell and just to clarify that, please.

Yeah, it’s a lot of it is Cromwell and Canada shrinking, so that’s a big part of it absolutely.

Got it. And just one last quick one, it’s helpful on the appendix where you give the monthly progression, and can you comment on how June ended as being the strongest month and what sort of set up have you seen in July so far?

Yeah, I mean we don’t want to over index on any monthly trends given some of the noise that can happen in the month. I would say that we do feel like we gained a little bit more share in June and we do feel like the market like I mentioned before is not falling off a cliff. We expect to be in a slow growth market moving forward and it’s been pretty stable from our perspective over the last several months.

Thank you.

Our next question comes from Josh Pokrzwinksi with Morgan Stanley. Please state your question.

Hi, good morning guys. On the -- and I appreciate these color you guys gave on the tariff environment and the ability to navigate that a little bit better as we move into this 25% in less three, maybe I missed it, but how would you kind of check that against the pricing environment out there, so maybe have to ask for a little bit less price, but what’s the appetite in the market some other folks in the space have mentioned that’s gotten a bit more challenging, what would be your take on those?

Yeah, we’re finding that we’re able to pass on most of the tariffs related price increases. The one thing that we called out in terms of price neutral is the only thing impacting that that we excluded was the price reset. We’ve had a great relationship on the tariff side working with our supplier partners. They want to sell the products with us, and it’s been going extremely well as a result Jeff.

Got it. That’s helpful. And then just coming back to analyst assortment, obviously there’s some kind of strategic synergy or operation playbook synergy from MonotaRO with Zoro. Once Zoro is further down the path and maybe just kind of learned all it can, is there a place for MonotaRO in the portfolio just given that it’s a little bit more distant and probably doesn’t give full credit from an external perspective given the strength of the business?

Yeah so right now we’re learning a lot from MonotaRO. There’s a lot to learn from their success. There is probably more leadership synergy than might be easy to recognize in a sense that the leaders of all of the businesses get together frequently and talk about what they’re doing. We haven’t talked much about Zoro UK, the Zoro UK is on a terrific path and will be profitable early 2020, that’s probably because of the linkages they have with MonotaRO and Zoro U.S. It’s a fair question but for now we certainly feel like we’re getting a lot of synergies out of the portfolio and it’s an important part of our portfolio going forward.

Got it. Thanks for the color. I'll leave it there.

Thank you. Our next question comes from Ryan Merkel with William Blair. Please state your question.

Hi, thanks. So, first off really nice job on the U.S. margins. My question is what is depriving you positively to hit the high end of the operating margin guidance just given the slower sales trajectory?

Well, I think it's been our ability to generate incremental margin. We know we’re in a choppy slowing market and our sales growth isn’t going to be as great as we had planned. We’re doing a lot of good work on cogs as we described. I think managing the tariff environment very well. We’re being very fiscally responsible on SG&A, while also really continuing to invest in our priorities, advertising, digital. So, it’s really comes down to our ability to generate incremental margin. I mean we had very good results as we called out.

Okay, that’s helpful. And then moving to Canada. I hear you're saying average daily sales are stable from the first quarter, but the recovery still seems to be tracking a little bit slower. So, what are the main issues and then any change to getting to breakeven by the fourth quarter?

The main issues have been when we went through some of the changes was first significant and there were many changes that we made. We had some customer's instruction that we are fully expecting. I would say the most important thing for me is that the services improved in the business, we're hearing better things from our customers, we're starting to win back some customers which is really, really important. I think the business is very well-positioned from a cost and business model perspective now. And we need to get the top-line going and that’s taken a little bit longer than we thought that’s really the only thing that concerns us at this point, can we get the top-line going.

And then breakeven by the fourth quarter 2019, is there any update there that you can provide?

As we said in our guidance, which is 1 to 54 for Canada, we believe to be tracking to the low end, so the answer would be yes, breakeven -- better than breakeven for the year.

Okay, great. Thanks.

Welcome.

Thank you.

Our next question comes from John Inch with Gordon Haskett. Please state your question.

Thanks. Good morning, everybody. Can we talk about the trajectory in the quarter? Was there a step down from the first to second quarter as we hit April and then how did sort of medium versus large play out sequentially, if there is any color you could provide there that gives us, DG you've said that that's stable, but you know, it seems - the number seem sort of low but it looks like they picked up, is there any color you can provide?

Certainly, I would say May was lower across all segments if that’s what you are referring to and June was better. I would say some of that are factors that are frankly not worth talking about from the last year or two in terms them setting the baseline that you're comparing to. But certainly, we don't see like I said before, we don't see anything falling off a cliff and we do see midsize customers growing faster than the rest of the business and we would expect to see that going forward.

But it sounds like you are sort of downplaying the significance of at least the monthly June take back up to 3%, is that the function of compares or is it just you don't want to get ahead of your skis by overpromising just based on one month?

I guess I would downplay May being down as well as low.

Right.

So, we would say that the quarter was -- if you average out the quarter that makes sense in terms of what we see from market growth.

And was thee a disconnect between the kind of the large versus the medium going back to my prior question, and as you exited, there wasn’t really, so I mean ...

No, not really.

It seems like medium, there is going to be pretty challenged to get back to double digit is that fair or do you see?

In the short-term that would be fair, like I said we're learning every day and we're doing things to continue to improve the trajectory and we like what we’re seeing, but certainly in the short-term, that’s true.

And then your margin guidance for the year, right, implies a significant step down from really commendable performance from the growth in non-profit margin side especially in the U.S. to sort of the total guide, which remains unchanged for the back half, what exactly is that seasonality or are there other things going on there or you just being conservative or why didn't you, why the step down I guess, particularly the midpoint.

You are referring to the U.S., so you're referring to the U.S.?

Well, kind of the whole thing right, just if you look at the guide. But then you look at the, with just the complexion of what's driving that right?

Right. Okay. There is some seasonality as you look at the way we performed historically. The gross margin does go down over the year, also recognizing the uncertain economic environment we're in, we just thought it would be prudent to be cautious in this and we measured in our guidance range.

So, Tom there is no price cost dynamic, I mean I know you talked about tariffs, you feel like you're on top of it, but there is no other price cost dynamic that's kind of playing out here that would be driving some of that disruptions?

No.

All right, then it almost implies the guy could have a little cushion in it, is that fair?

Seasonality and just the economic environment that we're in, I think it pays to be prudent.

Agreed. All right, thank you very much.

Welcome.

Thank you. Our next question comes from Justin Bergner with G Research. Please state your question.

Good morning, DG. Good morning, Tom.

Good morning.

Just on the guide, maintained margin guide, at least at the company level on. 2% plus lower sales. Just mathematically would suggest that EPS would be 2% lower, but it seems like you're maintaining that. So, should we also read that you're expecting operating margins to be a little bit above the midpoint of the guide at the company level to offset the lower sales?

Well, I'm really not going to get into where we think we're going to land in the range other than what we said in the prepared remarks. We've been running the play in the first half of, not getting the sales we've wanted, generating very strong incremental margins. And we're going to continue to do that in the back half. And we think it'll work out well for us. But it really doesn’t want to get into going forward where we think we're going to land in the range.

Understood. And then on repurchases. I guess you did a healthy amount of purchases this quarter, you've done $400 million year to date, that would put you tracking, at or above the high end of your range. If you sort of annualize that. Are you potentially going to do more repurchases in your earlier guide, or were they just more weight into the second quarter?

So, I would go back to our capital structure tenants, one of the tenants that we have is we don't want to hold any excess cash. And we were in a good position where we were, we had generated quite a bit of cash and we just use that to return back to the shareholders. So, really nothing to read into that. As it goes to our initial guide, we're sticking with that and if it changes, we'll talk about it, next quarter.

Great. Thanks for taking my questions.

Thank you.

[Operator Instructions] Our next question comes from Patrick Baughman with JPMorgan. Please state your question.

Hi, good morning, DG. Good morning, Tom. A few follow ups here. So, really good job on SG&A control in the first half of the year. Really, it looks like it was down year-over-year. on a material to basis. Can you take it down again year-over-year in the second half? And I'm just trying to understand what the levers are for that if you can. I ask because you said the cost actions are now, I guess complete. So, I'm just kind of curious of the levers on SG&A.

Yeah, our philosophy is that you can always optimize SG&A. And we will continue to look at that every day. The way we're looking at those is really trying to get to our 20% to 25% incremental margin. I mean, that's the objective that the organization is focused on. But there's always, there's always ways to take out costs. I think of the prepared remarks; the cost and cost takeout’s ending were primarily related to Canada.

And I would also just add that, I think if you look at our cost structure, a big part of our cost structure is process costs of distribution centers, contact centers. We've made some pretty big changes, for example, our contact centers, they are performing quite well now. They're going to continue to get better and better. So, maybe the restructuring is done, but we expect every single year to get continuous improvement out of our big out of our big operations and we continue to see that and would expect to see that going forward. So, it's not like we're not going to improve our cost structure. It's just that we may not have as much restructuring type things.

And I just finally I would add one important thing is even in this down market, because of what DG talked about our focus on market share and our focus on growth. We are not backing off of any of our strategic initiatives spending to hit an SG&A number. We're continuing to go forward full speed on that.

Do you think SG&A can decline in the second half year over year? And what, what drives, and I think last year and some big profit-sharing headwinds in the second half that were an impact in the numbers there. And I'm just, so maybe that's an easy comp. I don't know. I'm just trying to kind of tie those all the stuff together here.

Yes, we do have an easier comp as far as variable compensation. What I would say for the second half is we expect the SG&A rate to be lower than the previous year for sure.

The -- as a percent of your sales, you're just saying that the level of SG&A.

That’s the percentage of sales and we also expect the second half of the year to perform better than the first half of the year as it relates to favorability to the prior year.

From an absolute dollar perspective.

From a rate perspective.

From a rate perspective, got it, understand. And was that profit-sharing expense line, was that a help in the second quarter year-over-year, was it a tailwind?

Sure. Yeah.

And then just. Go ahead. I'm sorry. I didn't mean to interrupt.

That's okay. That's okay. Yes.

And then DNA looks like it's down year-to-date. What's driving that?

That's compared to last year, we had some issues in terms of keep stock, right, awesome machines, older machines that we replace. We also had some capital expenditures at two of our bigger DCs. So, we had a favorable compare there to last quarter.

Thank you.

Welcome.

Our next question comes from Bhupinder Bora [ph] with Wolfe Research. Please state your question.

Hey, good morning, guys. This is Bhupinder here, sitting in for Nigel. So, just, Tom, I think you mentioned you gave some guidance on the other businesses margin here, can you just give some more color on those margins targets and what your confidence is actually in the back half to achieve those targets for the year?

Yeah, we took down the other business unit operating margin target, primarily due to the performance in our Cromwell business unit. Obviously with the uncertainty of Brexit also that just combined with the transformation that we've got going on in that entity, where we're really changing the business model there in terms of being decentralized with the branch network and trying to have more centralization. Some of the things that we've noted on Canada, we're seeing there where we've disrupted the customer base, those types of things. So that's why we're taking down primarily for the other business unit.

Okay, and is investment spending a big part of that or is it pretty small, I mean you guys have done with ...

Certainly, the investment spending in Zoro in the U.S. is a big part that was planned at the beginning of the year. And we are we are spending that money and seeing what we want to see out of that. So, we had always planned for the Zoro margins to come down in the year. And that's what we're seeing. So that's when we talk about investment spending, that's really what we're referring to.

Okay, got it. If I can, another one here on pricing, as we saw in the first quarter pricing was 1.5, 2.5. How should we think about the back half, because when you look at last year, second half, I think we had pretty kind of close to 100 bps, actually pricing every quarter. Are we going to see much more realization what we have seen in the quarter, or as kind of tariffs kick in, like in the second half List 3, so if you can give some color on that? Thanks,

I think, like we said before, I think our focus really is to make sure that we are market priced in everything that we do. Depending on how the tariffs play out, that could mean more price or less price, I think and that there is some uncertainty around that. But we are tracking and watching this very, very closely and our objective always to make sure that we're priced competitively, and we will make sure we do that.

Thank you.

Our next question comes from Steve Barger with KeyBanc Capital Markets. Please state your question.

Hey, good morning. Just looking at heavy manufacturing down low single digit and natural resources down mid-single. In general, what are the customers or your sales force saying there, is there an expectation for improvement in the back half of those segments?

It's hard to tell. I mean, heavy manufacturing was basically flat for the second quarter, actually, in June, the overall market I'm referring to is actually negative. So, it's hard to tell where that segments going to go. Obviously, we've got a number of initiatives in play, which DG referenced in the prepared remarks in the Q&A. We think despite that down or slowing market, we're going to be able to gain share.

And just more broadly, given softer markets are customers leaning towards lowering reorder points or the amount of inventory they're willing to hold. And does that change how you think about inventory at the DCs.

Generally, not much. I mean, the reality is that customers don't hold a whole bunch of our inventory anyway. And the way we've structured most of our large customer relationships, we're helping them manage your inventory, we set MOQs that allow them to operate at a pretty lean level. So, we don't see a lot of channel loading or anything like that, with our customers, given that the business model, and our business model is based on this entirely on helping them manage your inventory effectively.

Got it. Thanks.

Thank you.

Thank you.

Thank you. Our next question comes from John Inch with Gordon Haskett. Please state your question.

Yeah, just as a follow-up, I wanted to ask you about Europe. One of the things we've gleaned this quarter thus far from other companies is the European economies are actually starting to show up in a much more pronounced basis negatively. And it implied that the other business results were more UK Brexit oriented, maybe a little bit of your own affliction. What's going on, actually, with respect to Fabory and just what you're seeing in continental Europe? And does that way on the results and have any sort of bearing on the second half in terms of your own expectations?

I think what we've seen over there, as we've seen, obviously, the UK market has been struggling a bit. And we've seen some manufacturers shift some of their production from UK to the Mainland of Europe. The favorite businesses had sort of consistent, modest growth this year, we think the market in the Netherlands and Belgium where they are, it's been up, combined, but not thought up significantly. Certainly, there are signs of some pressures in the European market. But what we see that favorite hasn't really weighed on results, so we are feeling in the UK has.

And the expectation that you achieve because you think it's just more of the same coming or the reasons based on just extra quarter trends or anything else. So, things get better, a little bit worse?

Yeah, and I would just, I would just remind, they may get a little bit worse, I would just remind you that we are very small and Fabory. So, it doesn't have a meaningful impact on us right now. So, I don't -- and I also don't know that we have the best lens. I mean, we have the lenses, the Netherlands primarily and some Belgium business. So, we don't have anything really in France speaking of a very, very little in Spain. So, we don't really have much exposure to the big markets to have a position.

Got it. Thanks very much. Appreciate it.

Our next question comes from Justin Bergner with G Research. Please state your question.

Guys, thanks for the follow-up. With respect to neutral price cost, are you seeing any different dynamic between sort of the industrial part of your portfolio and the non-industrial part of your portfolio? Just given some of the comments from other MRO distributors earlier in the quarter.

I have to think about that. I'm not sure I have a great answer for you to be honest. My inkling is probably not seeing much different. But I don't know that I could necessarily say that with certainty. I've looked at the total. And I'd have to go ask some questions about that. Interesting question.

Okay, great. And then lastly, with respect to the endless assortment model, you use the term continuous growth versus accelerating growth? Does that just reflect more challenging end markets? Or is there anything sorts of structural to be read into that changing language?

The structural, I think there's a sort of law of the universe, which is always been growing over 24 the first 5 or 6 years. If we want to continue to grow in the 20s. We view something else given as it gets bigger, that becomes harder to do. So, we didn't want you to think that we're going to accelerate from the 20s to the 30s or 40s, we're going to try to continue to have a strong growth rate.

Great. Thanks again.

Thank you. Our final question comes from Patrick Baughman with JPMorgan. Please state your question.

Hi. Thanks for giving me follow-up. I just wanted to follow-up; you've mentioned keep stock. And you said it's now profitable and was 10% of the business in 2018 and will grow faster, I guess then the rest of the business going forward. There hasn't been a ton of visibility here the last couple years. So just curious, if you could give a quick update and kind of what you've been doing there? Was it losing money last year and kind of what changes have you made to improve profitability and make you feel like you can grow it better and more profitably in the future?

Yes. We have about 3 years ago, 2 to 3 years ago, we made some changes and that's improved the profitability. We're now squarely in the place where we're building new capabilities. We've done some work on software, we've done some work on visibility and analytics and reporting to help customers understand the value that we're bringing, and we're going to continue to push on those things. The comments it's really around, we haven't for a couple of years, we hadn't been focused as much on capability building as we improve the profitability and now, we're really focused on that. And so that's going to be our focus going forward.

I think it's important to note that in June, we had our fastest growth way that we had in two years related to keep stock.

Got it. Okay, make sense. Thanks again. Good luck.

Thank you. Appreciate it.

Thanks.

Thanks. I will now turn the conference back over to Mr. DG Macpherson for closing remarks.

All right, thanks for joining us. I would just reiterate a couple of points. One is, in the U.S. given the profitability, we are really focused on growth and gaining share going forward and it’s a bit of a new orientation for us to say, we’re going to gain share on a consistent basis. But we are wiring ourselves up to be able to do that and that’s our primary focus and the other is the online model continues to be here profitable on a fast grower and so we’re investing to make sure we can do that. If those two things go well, we’re pretty excited about the future and I look forward to talking to you one on one, so thanks for your time and I appreciate you on the phone.

Thank you. This concludes today’s conference. All participants may disconnect. Have a great day.