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W.W. Grainger sets aside $70M to settle pricing dispute with U.S.

Published: Tuesday, Oct. 16, 2012 10:08 a.m. CST

(MCT) — W.W. Grainger Inc. set aside $70 million in pre-tax profits in the third quarter for the proposed settlement of an ongoing pricing dispute with the U.S. government, the Chicago-based company disclosed Tuesday.

The $70 million reserve, which the Lake Forest-based company called a “settlement in principle to resolve pricing disclosure issues,” involves contracts over at least 10 years with the General Services Administration and the U.S. Postal Service. The proposed settlement is subject to the approval of the U.S. Justice Department.

“We value our long-standing relationship with these important federal government customers and look forward to continuing to expand the products and services we provide to them in the future," Grainger Chairman and Chief Executive Officer Jim Ryan said in a statement.

Grainger, a supplier of maintenance and repair products, noted that it also has established a $6 million pre-tax reserve to resolve tax, freight and miscellaneous billing issues with the government customers.

Grainger’s pricing problems with the government came to light in 2008, when a former sales manager sued the company, alleging it repeatedly overbilled the U.S. government on its supply contracts.

Separately, Grainger said sales rose 8 percent to $2.3 billion in the third quarter, despite one fewer selling day in the period. Excluding the reserves over the proposed  settlements, earnings per share rose 12 percent to $2.81  a share, partly due to better profit margins.

Including the reserves, earnings per share were $2.15, down 14 percent.

But while Grainger’s underlying business results were solid, the company noted that, “in light of the sluggish global economy, we are slightly revising our 2012 sales guidance to 11 to 12 percent growth. “

It said, however, that its earnings per-share guidance remains unchanged at $10.50 to $10.80.

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