Greetings and welcome to the W.W. Grainger Fourth 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. 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. Good morning. Welcome to Grainger's Fourth Quarter and Full Year 2024 earnings call. With me are D.G. Macpherson, Chairman and CEO, and D. Merriwether, Senior Vice President and CFO. As a reminder, some of our 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 presentation includes non-GAAP financial measures, which include certain adjustments in previous periods as noted in the presentation. There were no adjusting items in the fourth quarter 2024 period. Definitions and full reconciliations of our 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'll turn it over to D.G. Thank you, Kyle. Good morning and thanks for joining the call. In 2024, the Grainger team continued to drive our strategy forward by remaining focused on what matters most: providing our customers with exceptional service and a great experience. On these core issues, we made strong progress this past year. We leveraged our technology, data, and analytical capabilities to drive differentiated value for our customers in both segments. We invested in supply chain capacity to extend our leadership position in MRO fulfillment, and we remained focused on fostering a workplace environment where all team members can build a rewarding career. These efforts allowed us to deliver on our financial commitments for the year and helped us maintain our track record of driving strong returns for shareholders. I am proud of the progress we've made and want to take a few minutes to highlight some of these accomplishments in more detail. To start, I'd like to ground us in the understanding that all MRO distributors are trying to solve two basic customer needs. First, customers expect a flawless experience. That means having the products they need, making it simple to find, having a seamless order process, getting it to them quickly, and making it easy to receive and pay. Second, customers expect their MRO partner to deliver tangible value for their business. This goes far beyond selling products and is something that shows up differently for each customer. It could be simplifying a customer's purchasing process, helping them improve inventory management capabilities, finding product substitutes to save them money, or supporting their operational and safety challenges. Our two go-to-market models, High-Touch Solutions and Endless Assortment, are built to solve these needs for customers of varying sizes and industries. Our teams and processes are structured to help customers find the products they need, buy it with confidence, and deliver it next day and complete. We do this while minimizing complexity and showcasing our value-added capabilities that are relevant to their context. To do this well and at scale, we continue to build upon our three core foundational competencies. These are leveraging our technology and data capabilities to extend our digital advantage, expanding our supply chain footprint to maintain industry-leading service, and building and cultivating a highly engaged team. Let me briefly touch on each of these. Over the last several years, we have invested heavily to build market-leading data and technology capabilities, including developing proprietary product information and customer information systems. These data assets underpin our five strategic growth engines and fuel our ability to gain share within our High-Touch Solutions segment. In 2024, we made some great progress. Within merchandising, we have completed a first-pass review through our full assortment. This is a tremendous milestone, and I'm proud of the continuous improvement mindset the team has taken to advance and standardize the process with this Evergreen initiative. We'll continue to review categories, and we'll likely see more net assortment growth going forward as we add products to meet evolving customer needs. Our marketing team is focused on driving continued strong returns on our ad spend. In 2024, we expanded our top-of-funnel marketing efforts to new channels to increase brand awareness. We also iterated on our digital marketing strategy to best capture in-the-moment demand. Further, we're finding new ways to utilize our PIM and KIM data assets to improve the effectiveness and efficiency of our spend. We have seen positive results in many areas and plan to continue to increase our overall marketing investment again in 2025. We continue to leverage our improved customer data to expand our sales force, adding one new geography and around 70 new sellers in 2024 as part of our sales coverage initiative. We slowed our investment in this space in 2024 and to start this year, but we continue to be pleased with our results and expect to add one or two more geographies later in 2025. Our sales force remains our biggest demand generator, and we are investing in tools and resources to increase their effectiveness and help them better serve our customers. We built and launched a proprietary Seller Insights tool that integrates with other Grainger platforms to serve customer-specific insights. This helps our sellers save time and enables more productive customer conversations. Just this week, we are conducting intensive training for our sellers to help them meet their customer needs. Helping our sellers succeed will always be a focus. Within Customer Solutions, we implemented new homegrown software across our KeepStock platform to enhance our inventory management capabilities, and we are piloting new customer-facing tools which will provide access to enhanced data and insights. These advancements will help improve the user experience and drive procurement cost savings for our customers. All told, there's plenty of runway across our growth engines to continue powering share into the future. The information advantage we build across product and customer information also unlocks our ability to tap into new and emerging technologies to better serve customers and extend our leadership position in the MRO industry. We're leveraging our proprietary data to find new ways to increase revenue, drive efficiencies, and enhance service. We've been developing a variety of different capabilities across the business, including homegrown machine learning, large language models, and data tools where we can add incremental value. We are also piloting off-the-shelf technologies to help streamline back-office processes. To bring this to life, we've included a few examples. In KeepStock, we're leveraging computer vision to streamline our install process. Here, a cell phone camera can extract and codify detailed product information to help reduce errors and better organize the layout for the new install. This saves meaningful time for our KeepStock team members, lowering the install cost while improving the customer experience. Our inventory team has been augmenting their planning algorithms with advanced machine learning models to optimize the depth and breadth of products across each market. These new models have been implemented across most of our North American network, driving service-level improvements. Going forward, the team sees opportunities across supply chain to further refine our planning capabilities, helping us extend our service lead and optimize asset efficiency. Finally, as mentioned last quarter, we're testing a generative AI model in our call centers, which leverages our proprietary product and customer information to craft well-informed responses to customer chat inquiries. This tool allows us to scale our know-how and equip our customer service agents with fast, relevant responses to help customers get what they need more quickly and efficiently. We're still in the test phase here, but audits by our technical product specialists have found it to be highly accurate while providing near-term, near-immediate response times. Down the road, this tool could be applied to other customer action channels. We're also investigating how this underlying technology could support other use cases across the business. We are just scratching the surface on how we can continue to leverage our data and these next-gen tools to develop advantage across the business. I'm encouraged by the progress we've made in 2024 and for what's to come in 2025 and beyond. Moving to Endless Assortment, we made great progress within the segment and continue to propel the flywheel forward. At Zoro, the team made significant progress on expanding their marketing efforts, growing the assortment, and enhancing the customer experience. This includes leveraging data and analytics to optimize the on-site search algorithm and improve delivery communication and capabilities. The result has been a steady flow of user acquisitions, improved B2B customer retention, and a return to double-digit sales growth as we exited the year. MonotaRO continues to execute exceptionally well, driving strong results, including 29% growth with enterprise customers. The business continued to see strong retention rates while deepening our share of wallet with core B2B customers. We are actively sharing learnings across these businesses and are excited to build on our momentum in 2025. Our supply chain is foundational to driving a great customer experience. We have built our supply chain to specifically serve B2B customers with ship-next-day, complete orders. We've made significant progress on enhancing our service capabilities and expanding our distribution center network. This includes beginning construction on a new Houston area DC, continued progress at our new Northwest DC, and further investments in bulk warehouse capacity, including a roughly $80 million facility in Illinois that we purchased at the end of 2024. Across the network, we see opportunities for automation and other advancements, which will help drive further efficiencies and ensure the long-term resilience of our supply chain. As we invest in this space, we remain focused on maintaining our industry-leading service advantage now and into the future. Our last foundational competency is our people. At the core of our success is our more than 26,000 team members who live our purpose-driven culture. Our team members are resolute in fulfilling our purpose: we keep the world working and living our principles because we know the work we do matters. This ensures we get the best out of our talent and operate with the highest ethics and integrity. Our company remains an employer of choice, as evidenced by being certified a Great Place to Work across North America and Panama. Additionally, this year, we were named the top-ranked company across all industries on the American Opportunity Index, which primarily focuses on the experiences of workers in non-college degree roles and the company's ability to offer them growth and development no matter their career path. These recognitions are a testament to our culture, including our commitment to ensure all team members can have a meaningful and fulfilling career here at Grainger. Lastly, I'd like to thank our team members for the critical role they've played in helping their communities through numerous natural disasters over the past year. This includes ongoing support for customers and local and federal relief agencies across the Los Angeles area as they continue to battle the devastating fires. Now turning to our full-year financials, the demand environment remained sluggish throughout 2024, but we finished the year with over $17.2 billion in sales, up 4.2% on a reported basis, or up 4.7% on a daily organic constant currency basis. Growth for the year included profitable share gain from our High-Touch Solutions U.S. business, which finished the year with roughly 100 basis points of total market outgrowth, including 325 basis points of outgrowth on a volume basis. In Endless Assortment, the segment showed significant top-line improvement with daily constant currency sales up 11.6%. Both Zoro and MonotaRO continue to win with their core B2B customer base and drive improved repeat purchases rates, positioning them well for the future. Alongside the solid top line, the team also did a great job delivering continued strong margin performance, all while investing for the future with operating margin finishing at 15.5% for the year. Together, these results fueled strong earnings with adjusted EPS of over 6% to $38.96 per share. ROIC finished at 41.6%, and operating cash flow was over $2.1 billion, which allowed us to return $1.6 billion to shareholders through dividends and share repurchases. Overall, I'm proud of what we accomplished in 2024 and know we are working on the right initiatives to remain the MRO market leader for years to come. With that, I will turn it over to D. to review our fourth quarter results. I want to echo D.G.'s sentiment on our strong 2024 performance. Not only did we make progress on a number of strategic initiatives, but the team was also able to deliver on the majority of our 2024 financial commitments. This includes revenue, margin, and EPS, all finishing within the original guidance ranges we provided this time last year. Now turning to detail on the fourth quarter, we had another good quarter to finish out the year with results coming roughly in line with expectations. For the total company, daily sales grew 4.2%, or 4.7%, on a daily organic constant currency basis, which included growth in both segments. Sales were strong in the quarter despite softness in the back half of December from holiday timing and customer shutdowns. Total company gross margins for the quarter were strong, ending at 39.6%, up 50 basis points over the prior year period. Favorability was mainly driven by the High-Touch Solutions segment, which I'll detail on the next slide. This gross margin favorability largely flowed through to the bottom line, where operating margins ended the quarter at 15%, up 40 basis points versus the prior year. Overall, we delivered diluted EPS for the quarter of $9.71, which was up over 16% versus the fourth quarter of 2023. Diving into segment-level results, the High-Touch Solutions segment continues to perform well, with sales up 4% on a reported basis, or 3% on a daily organic constant currency basis. Results were driven by solid volume growth and continued improved price contribution within the segment. We also delivered growth across all geographies in the period in local days, local currency. In the U.S. specifically, we saw strong growth with government and healthcare customers, which helped to offset more sluggish performance across the other areas. For the segment, gross profit margin finished the quarter at a strong 42.3%, up 90 basis points versus prior year. Favorability was aided by a roughly 50 basis point lapse of year-end inventory cost adjustments from the prior year, as well as slight mix and freight favorability in the current year period. Price cost for the quarter was roughly neutral. Operating margin for the segment finished the quarter at 17%, which was up 60 basis points versus the prior year. Gross margin favorability in the segment more than offset incremental investment in demand-generating activities in the period. Despite the December top-line softness, it was a good finish to the year for the High-Touch Solutions segment. Turning to market outgrowth on slide 16, using our total market model, which includes both producer price index and industrial production inputs, we estimate that Grainger took approximately 100 basis points of total share gain in the fourth quarter. As you can see on the slide, this helped us finish full year 2024 with roughly 100 basis points of mathematical share gain in total, as our High-Touch Solutions U.S. business grew 3.3% organically compared to our total MRO market model, which was up between 2% and 2.5% for the year. Pulling apart the model at the bottom of the slide, we drove approximately 325 basis points of volume outgrowth for the year. This growth was offset by a mathematical share loss from price of roughly 225 basis points, as the PPI sub-index we use in the market model inflated meaningfully higher than Grainger's price contribution to revenue. As we've discussed all year, our mathematical share gain has been impacted by differences in product and customer mix between our business and the underlying mix that contributes to the PPI and IP sub-indices we use as the price and volume inputs to our market model. On price specifically, the dislocation is more dramatic on products that are experiencing high inflation in the current environment, such as airplanes and medical equipment. These products are contributing to higher market inflation than what Grainger is seeing on MRO-specific products. While the total market model remains highly correlated to our performance over time, this period of dislocation has persisted for several quarters. Our focus as a company has been and is to remain price competitive and grow share via volume-based initiatives. With this, and given the recent outsized dislocation we've seen in the price component, we will be focusing our market measurement on just the volume component going forward. While the volume component of the model can still have dislocations due to its aggregated and broad nature, we feel it captures the essence of the underlying MRO activity and will serve as a good benchmark for our performance over time. On price, we have several internal and external signals that can be used to ensure that we're remaining price competitive, and our ability to do this well can be better monitored through our gross margin results. We will continue to break out our High-Touch revenue between volume and price in the appendix of these materials each quarter as we pivot to the volume-based view. With these changes, if you turn to slide 17, you can see our go-forward view of volume-only outgrowth, which ties back to the 325 basis points of volume contribution from the previous slide for the full year of 2024. This metric still reflects some mix-related dislocation, but much less after removing the undue noise from the price component. Overall, we remain confident in our strategic growth engines and their ability to drive share over the long term and continue to target 400-500 basis points of average annual outgrowth over time. Turning to the Endless Assortment segment, sales increased 15.1%, or 13.2%, on a daily constant currency basis. Zoro U.S. was up 13.9%, while MonotaRO achieved 14.3% growth in local days, local currency. At a business level, Zoro's growth rate continued to ramp as it has all year. The business saw strong traction across all customer types, including growth in the teams within their core B2B customer group. For the quarter, B2C and B2C-like customers grew roughly in line with core B2B, a trend we expect to be reasonably consistent going forward. At MonotaRO, sales growth remained strong with enterprise customers coupled with solid acquisition and repeat purchase rates with core small and mid-sized businesses. On profitability, operating margins for the segment increased by 80 basis points to 8.6%, with both businesses contributing year-over-year. Zoro operating margins were up 140 basis points to 3.7%, aided by continued operating leverage. At MonotaRO, margins remained strong at 12.6%, with DC operating efficiency driving continued year-over-year improvement. Overall, we're proud of the improved performance through 2024 within the segment and look to continue momentum this year. Now moving to our 2025 guidance. Our outlook for the year includes revenue to be between $17.6 billion-$18.1 billion at the total company level, driven by growth in both segments. This translates to daily constant currency sales growth between 4% and 6.5%. Within our High-Touch Solutions segment, we expect daily constant currency sales growth between 2.5% and 4.5%. In the U.S., we expect market volume growth for the full year to remain muted. This is consistent with what we're seeing in the current short-cycle environment and does not assume a step-change macro recovery that some are projecting for the back half of the year. On share gain, we will continue to target 400 to 500 basis points of U.S. market volume outgrowth over time. However, we expect to land in the low end of the range in 2025 from continued measurement dislocation due to mix, and as we check and adjust our marketing and seller expansion efforts to incorporate learnings. Lastly, we anticipated minimal pricing inflation for the year, which is in line with what we're hearing from suppliers and seeing in the market for MRO-specific products. This assumption excludes any impact from incremental tariffs that may or may not occur in 2025. In the Endless Assortment segment, we anticipate daily constant currency sales to grow between 11% and 15%. This segment-level growth will be roughly 325 basis points lower on a reported basis when you normalize for expected foreign currency exchange headwinds and fewer selling days in the current year period. At the business unit level, Zoro is anticipated to grow in the low double digits as they continue their momentum in driving higher repeat rates, consistent service, and improved target marketing. MonotaRO is expected to grow in the low teens at the midpoint in local days and local currency, which normalizes for three less selling days in 2025 and expected FX headwinds from the end. This strong performance is fueled by growth with new and enterprise customers alongside strong repeat rates with their core B2B customers. Moving to our margin expectations, we expect total company operating margins to remain strong in 2025, ranging between 15.1% and 15.5%. In the High-Touch Solutions segment, operating margins are expected to stay healthy but will contract slightly to be between 17% and 17.4%. This is driven by relatively stable growth margins, although they may tick down slightly off a strong finish to 2024. We expect SG&A will modestly deliver at the midpoint on a softer top line and continued investment across our growth engines. In Endless Assortment, we anticipate operating margin will continue to ramp between 8.5% and 9%, up 20-70 basis points versus 2024. Slight growth margin headwinds at Zoro from continued growth of lower margin third-party ship SKUs will be offset by continued operating leverage at both business units as the flywheel continues to drive new customer growth and repeat purchase rates. Turning to capital allocation, we expect the business will continue to generate strong cash flow in the year with an expected range of $2.05-$2.25 billion, implying operating cash conversion north of 100%. We plan to continue to execute a consistent, return-driven approach to our capital allocation strategy, meaning our priorities remain largely unchanged from prior years. We'll continue to invest in the business and expect CapEx in the range of $450 million-$550 million. Spending here includes further supply chain investment as we progress with the construction of our new DC capacity. We also plan to advance our data and technology capabilities, helping to further our customer value proposition. Alongside these organic investments, we continue to explore inorganic opportunities that help further our strategy or advance our capabilities. We plan to remain highly selective here in 2025. Outside of investment, we expect to return the balance of our excess cash to shareholders in the form of dividends and share repurchases. We'll formally set our 2025 dividend in the second quarter, but again anticipate consistent annual dividend increases in the high single-digit to low double-digit percentage range. On share repurchases, we anticipate the amount for 2025 will be between $1.15 billion and $1.25 billion. As in prior years, we feel this return-focused allocation philosophy provides the organization optimal flexibility to efficiently manage investment while maximizing shareholder returns now and into the future. In summary, at the total company level, we plan to grow top line by roughly 4%-6.5% on a daily constant currency basis. Note that reported sales growth is roughly 130 basis points lower than our daily constant currency range as we're normalizing for FX headwinds and one fewer selling day in the current year. A reconciliation of these impacts is provided in the appendix of this presentation. Growth margin and operating margin, as we discussed, will remain healthy for the year, leading to an expected EPS growth of flat to +6.5%, or $39.00-$41.50 per share. Note this expected EPS growth range includes a $20 million net interest headwind in 2025 following our debt refinancing and expected lower interest rates on our cash balances. Further, there's roughly a 110 basis points year-over-year headwind to our EPS growth rate as our effective tax rate normalizes in 2025 after the one-time benefit we captured in 2024. From a seasonality perspective, we expect sales to start slower and ramp as we move through the year. This includes a softer start in January from the timing of the New Year's holiday and the cold weather disruptions experienced during the month. With this, January sales started slow but picked up momentum as the month progressed, with preliminary results up approximately 2.5% on a daily constant currency basis. January growth will be approximately 100 basis points higher if you normalize for the holiday and weather impacts. When translating daily constant currency sales to reported revenue, there's a lot of noise this year, particularly in the first quarter. This is driven by foreign exchange headwinds, which are most pronounced in Q1 before subsiding in the middle of the year. There's also one fewer selling day in February, which reduces revenue by roughly $70 million year-over-year, representing a 160 basis points headwind to reported sales growth in the first quarter. All in, this translates to expected reported sales of around $4.3 billion for the first quarter of 2025. On profitability, given the slower start to sales and one less selling day in the current year period, operating margin rates will be challenged in the first quarter before ramping through the year. This deviates from our normal seasonal pattern as we won't see the price timing favorability we normally capture in Q1, given the low-cost inflation environment we're experiencing this year. With this, first-quarter operating margins will be closer to the bottom of our 2025 full-year guidance range, around 15%. This will drive year-over-year EPS growth to be flat to slightly down in the first quarter and will ramp thereafter as the year continues. Lastly, we're reiterating the core tenets of our long-term earnings framework, including continued strong top-line growth comprised of 400 to 500 basis points of annual volume outgrowth in the High-Touch U.S. business and annual revenue growth in the teens for Endless Assortment. Generally stable gross profit margins within each segment and SG&A growing slower than sales over time while still investing in demand-generating activities to drive sustainable long-term growth. Executing against these tenets can drive double-digit EPS growth under normal market conditions. Combining this with our balanced capital allocation strategy, we think this represents an attractive return profile that can drive significant value creation for shareholders. With that, I'll turn it back to D.G. for closing remarks. Thanks, D. In 2024, our team members showed up every day living Grainger's purpose and putting the customer first, leading to strong results for the company. As we head into 2025, I'm confident our durable advantage will allow us to continue to gain share and create strong returns for all stakeholders. With that, we'll open the line up for questions. Thank you. At this time, we'll conduct our question-and-answer session. To all questioners, please limit yourselves to one question and one follow-up question. To ask a question, please press Star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press Star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. Once again, to ask a question, press Star 1 on your phone. Please stand by as we poll for questions. Our first question comes from Tommy Moll with Stephens. Please state your question. Good morning, and thank you for taking my questions. Good morning. D.G., I wanted to start with a question on the new volume-based outgrowth metric that you've provided. So the $400-$500, I believe, is unchanged from the prior framework. If we look at 2024, you were a little bit below the low end of that range, and I think the guidance for this year contemplates being around the low end of that range. So to the extent you can bridge us on those two years, what the headwinds were and what keeps you confident in that $400-$500 longer term, that'd be appreciated. Thank you. Sure. Thank you. So first of all, the biggest dislocation has been on the price component, and D. actually hit that. There's some product categories that we don't actually play in that have had more price inflation. So we felt like moving to the volume metric made the most sense. We were lower than the $400 for 2024. There was still dislocation, we believe, in the volume metric as well. And I will say that this metric does get restated as well at that point moving forward. So we have found that we may have done better than we've stated here. That is possible. So the $400, you see $400, $450, $450 moving forward. The $400 is really a nod to the fact that we found that when we expanded seller coverage, if we went with too many sellers at one time in a region, we struggled to hit the execution we wanted. So we scaled that back a little bit and only had one region of 70 new sellers in 2024, and we're going in smaller chunks moving forward. So that slows down that metric a little bit for this coming year. But basically, nothing has really changed in reality. As a follow-up, D.G., I wanted to ask about what's assumed in your outlook this year on government spend. And I mentioned that just because there's plenty in the headlines these days about potential headwinds there. And so as you put together your outlook for this year, I'm just curious what assumptions you made? Yeah. We obviously have a strong government business. I would remind everybody that the vast majority of that, the majority of that is actually state and local government. So federal government's a smaller portion. Of the federal government portion, military is by far the biggest chunk. And we do very well in serving the military, and we don't think that's going to be affected much, and it may actually be a positive potentially. So we don't have a huge impact in there right now from some of the government changes given where we play. We obviously are constantly looking at regulations and making sure we understand what's going on, but we feel pretty good about our federal business and our state and local business at this point. Thank you. Our next question comes from Ryan Merkel with William Blair. Please state your question. Good morning, all, and thanks for taking the questions. My first question is just on the outlook for 2025. You've got the market volume down 1%. Can you just talk about some of the assumptions you've made, and did you include anything for tariff uncertainty in that outlook? Yeah, I'll start with that. So yeah, we're assuming that the U.S. MRO volume portion of the market will be flat to down 1.5%. And if you think about that at the midpoint, that is about where we, I believe, 2024 was. And so we're really not expecting, like some are, a macro step-up change in the year. So we're assuming 2025 is going to be like 2024 at this point. And then to the second part of your question, since the landscape around tariffs is so uncertain and changing rapidly and daily, we chose to not include any tariff-related impacts in the guide at this point. And as more is known, and we understand it and can work with our supply base, we, of course, will run that through our numbers. And if an adjustment is needed, we will do that at the next time we speak with you. Got it. Okay. That's helpful, and I think that's fair. And then my second question is just on the opportunity with AI. And thanks for the extra detail on the deck. I'm looking at page seven here. And I guess, D.G., this may be hard to answer because it's early, but should we view AI as potentially transformative for Grainger, or is that a bit strong? Maybe it's just another tool in the toolbox to help you outgrow? Yeah. I think the way I view the AI tools is the powerful set of tools that can help make the business better. And really important to point the efforts at the right issues for the company and define processes that will benefit from AI. It's also really important to have data. If you don't have the right data and right data feeds, you can get some junk out. And so we've been investing in those data assets with PIM and KIM over the last several years. And we've also invested in understanding how best to use AI, and we're experimenting and learning about where it plays best. We've been using ML, which is a part of AI for a long time, and we have something like 18 working models in the business that run all kinds of things. So this is not really new to us. We do think some of the tools will give us an advantage in certain areas, given our data quality and the amount of data we have. I'll leave it there. Thank you. And our next question comes from Sabrina Abrams with Bank of America. Please state your question. Sabrina Abrams, your line is open. You may be muted. Please unmute yourself. Hey. Hi. Sorry about that. Good morning. Morning. Morning. So I'm also going to ask a question about the volume target. So I see the slide that lays out the framework, the shift from four to five target to be about volume outgrowth rather than the total market. Just to clarify, are there any changes to how you're thinking about your gross margin or your operating margin or the EPS CAGR long-term targets given the shift in the outgrowth target? No, no. There's no changes at all. In fact, the outgrowth target's still the same too. So really, there's no change in anything or our confidence about the earnings algorithm going forward. Nothing's changed. Okay. Great. Thank you. And then as we think about the margin ramp through the year, I guess, how should I think about the drivers of margin maybe at the bottom of Q1 and then ramping through the year? Just looking at it, I think the price comps are more difficult in the back half, at least for U.S. HCS. So what sort of drives the improvement off of Q1? Yeah. So let me take it back a little bit, and I'll start with sales, and I'll end with profitability because there is a little bit of noise, especially in Q1. And so as I mentioned on the call for the first quarter, we feel like we've had a slow start, and that'll flow through the P&L, mostly due to January results and holiday timing and some adverse weather. And so that's going to also impact the first quarter. And so when you translate daily constant currency sales to reported sales, there's a lot of noise in the first quarter. And that's driven by foreign exchange headwinds, which are most pronounced, again, in the first quarter. And also in the first quarter, there's one fewer selling day in February, which reduces revenue roughly by about $70 million, representing about 160 basis points headwind to reported sales. And that all translates to the number that we provided in the prepared remarks that we believe reported sales for the quarter were in about $43 billion, around that area for the first quarter. And so from there, we're still not going to have a typical seasonality with the business because generally in the first quarter, we raise price more significantly. We've noted that price will be minimal in the first quarter. So you're not going to have the change sequentially from Q1 to Q2. So I wanted to call that out as well. And given the slower start to sales, when you include the FX impacts as well as the daily sales counts, operating margin in Q1 will be about the lowest of the year. And we kind of set that in the prepared remarks as well. We think it's going to land around 15 for the full year guidance range. This will drive EPS down to be flat to slightly down in the first quarter, and then that will also ramp thereafter. But basically, it's because of the sales impact. And basically, that's the whole game here in the first quarter. There's some strange things going on with sales and FX. Thank you. And our next question comes from David Manthey with Baird. Please state your question. Yeah. Thanks. Good morning, everyone. D.G., to follow on to what you just said, question on contribution margins, I guess not just in the first quarter, but more holistically for the year. At what rate would you expect unexpected incremental volume revenue dollars? So not tariffs or anything like that, but revenue dollars that were unexpected to flow through to EBIT. And let's say that that's manifested in a market growing 2% rather than flat to down one and a half. Yeah. I mean, we would expect if you're saying if we get better market conditions, north of 20% would be some incremental margins. Yep. Okay. And then just one for D. quickly. As we look at slide 23 and we're bridging from the EBIT to the EPS, I know you have these below-the-line items for non-controlling and allocation of participating securities. Could you just tell us what your rough estimate is for that? Is it $95 million, $96 million, something like that? Let me get to the slide. You said slide 23? Yeah. I think that's about right. Yeah. You're looking at OIE? Yeah. That's right. Okay. All right. Thank you. Thanks. Our next question comes from Jacob Levinson with Melius Research. Please state your question. Good morning, everyone. Morning, Jacob. I just wanted to expand on Ryan's question a little bit around AI, and I mentioned you've been using machine learning for some time, but maybe you can give us an example or two of where there's been a step change in the capabilities that you have today or expect to have just given the advancements that we've seen coming out of Silicon Valley. Yeah. I mean, I'll give you two, and I mentioned these in the prepared remarks, but a couple of years ago, we developed our own machine learning model to help stock our distribution centers, and this is a messy model with a lot of data because you've got to have supplier lead times and slotting positions and everything in the model, and then you let the model work to get the best service out of that. And that has driven significantly improved service in our buildings. And so that model continues to learn, and we continue to use that to basically make sure we have the right products in the right place for our customers. And that's an example of a step forward. I think the other one is we've been using Generative AI to work with chat, with our chat process in our contact centers. And that has helped make our responses to customers better, help them find products faster, and we're going to expand that to other channels as well. So we feel there's a lot of opportunity to use Generative AI with our proprietary data to basically provide better customer experience. And we're going to continue working on this thing. That is super interesting. Actually, just on the DC point, are these new facilities, when you build something from the ground up, I would have to imagine even a facility you built five years ago is kind of outdated from a technology and automation perspective, given all the changes that have happened in AI and just warehouse automation in general. But are these facilities, how much more productive are they, I guess, is the question relative to the legacy stuff? Yeah. In terms of distribution center productivity, certainly when we put the building in, that was the largest goods-to-person system in the world, we believe. That is somewhat old technology, but still pretty effective. We got probably four times the picking rates for small parts out of that building. The issue is a lot of the building has forklift drivers and stuff, and that doesn't get as productive. So the overall building is certainly more productive than it was before. But what we've been able to automate and what the industry has been able to automate is mostly small parts picking rather than full pallet picking. And so parts of the building get a lot more productive, and parts have not, I'd say. Parts are still sort of driving things around. We actually, though, have also been playing with AI tools that allow our DC team members to be working and get sort of single flow. So you can push what to do next to them rather than working on 45-minute slots. And that allows them to, based on where they're at, get the next most efficient thing sent to them. And that, we think, is going to be pretty beneficial for us as well. Thank you. Your next question comes from Christopher Snyder with Morgan Stanley. Please state your question. Thank you, guys. I hopped on a bit late, so I hope this wasn't already addressed. I wanted to ask about price and gross margin. I think the minimal price expectation for 2025 is maybe a bit below what the market was thinking. I just wanted to confirm that this is really just a reflection of your expectation for what you think the producers will ask for. Does the company feel like they can push incremental price if needed? We look at a lot of things when we set price. One is what competitors are doing. One is what our suppliers are asking for. Last year, we were pretty much flat from a GP perspective. We expect to be similar in the high-touch model next year. So yes, our price expectations reflect what our suppliers are asking of us as well. And that's an important element. We think if there is price in the market, we can certainly pass price. And if there's not, then passing price probably isn't the right thing to do. Our price tenet is basically to stay price competitive and over the long term be relatively price cost neutral. And we think we can do those things. Yeah. I appreciate that. Thank you. And I think you guys were price cost neutral in fourth quarter. It seems like the expectation is to stay price cost neutral in 2025. So I guess, is there anything weird with the typical gross margin seasonality? I know D. called out some moving parts in Q1 with FX because typically we get a pretty material step up on gross margin from Q4 to Q1, which could kind of put Q1 in almost that 40% range, which makes low 38s for the year feel like a relatively low bar. But let me know if I'm missing something on that or there's anything weird on the seasonality. Thank you. Yeah. Chris, I'll step in here a little bit. As you and D.G. were discussing, we're really trying to focus our price inflation based upon what we're seeing with our supplier negotiations. And we're not seeing the supplier inflation that then would translate into price inflation like what you're seeing from some of these market indexes. And so then even when we do our scrapes, we're not seeing that. One of the things I called out in my prepared remarks is that we do see other product categories that are listed as industrial, and they are in the PPI sub-index. But those are things like airplanes and airplane parts and medical equipment. And we don't sell any of those things. So within that index, there is inflation on those products, but those are not products that we actually sell nor bring into our inventory. So we're not trying to chase that type of inflation. Your next question comes from Christopher Glynn with Oppenheimer. Please state your question. Yeah. Thanks. Good morning. So just on the immediate bridging of outgrowth on the volume basis, you had 2-2.5% in the second half and then 4-4.5% for the current year. Is that something that kind of builds back gradually given the steeper outgrowth comps in the first half, whereby the first quarter you're still kind of transitioning to rebuild momentum? What I will say is we talked about what we think Q1 will look like, be a slower start to January. So we may have a little softness there. But yes, with us targeting the lower end of the 4 to 5, that would imply that we would expect some ramping of share gain through the year. Okay. And then on the gross margin performance, the 39.6 in the fourth quarter, arguably the cleanest of the year with lapping some mismatches, and you had some callouts earlier in the year. So if we were to regard that as something of a jumping-off point, is there a reason that isn't reading through or staying at a bit higher level than how you're benchmarking? I think I want to make sure you're talking about fourth quarter results? Yeah. Was there anything particular in that 39.6% for the company that diminishes into next year? Yeah. Well, we did have about a 40 basis points tailwind this year from the fact that we had an E&O adjustment in the prior year. That's not sustainable. But the things that may be more sustainable is that we did get a slight mix and freight favorability of about 30 basis points in that number. As we continue to talk about at the total company level, as the EA business grows faster than high touch, we will have a headwind from BU mix, and that was about 20 basis points. So there were some ins and outs there that totaled to about 50 basis points year over year compared to fourth quarter 2023. Thank you. Our next question comes from Ken Newman with KeyBanc Capital Markets. Please state your question. Hey. Good morning, guys. Thanks for squeezing me in here. Good morning, guys. D., I was curious. Morning. D., I was curious if you could just quantify for us how much the fourth quarter ADS was impacted by the timing of holidays and extended customer shutdowns. And then just understanding that there is a lot of noise in 1Q, I'm just really curious if we've seen weekly sales trends in January return to those pre-shutdown levels yet. Yeah. So if you look at the fourth quarter, we're estimating that. Remember there was a hurricane, and then there was holiday timing. And so there was about an 80 basis points impact or benefit from the hurricane for us that happened in October, but on the quarter was 80 basis points. And then holiday timing and shutdowns was about 50 basis points. And so when you normalize for that, the 4.7 goes to about 4.5. Got it. And then maybe can you talk about the January trends? Yeah. So the first full week of January, there was a lot of weather events that were challenging to understand. But I would say other than that, things have popped back to what is sort of normal activity. Got it. That's helpful. And then just for my follow-up here, I know there's a lot of moving pieces here and a lot of investments going into place here into 2025. Is there any way to quantify the dollar SG&A spend for each of those buckets just to help us bridge to what's going to be fixed investment versus what's tied to whatever the volume flex will be in the year? Well, generally, we don't share our investment dollar inputs to the business. But I'll say this. We are going to intend to invest incrementally in marketing. D.G. talked about our pace with seller ads from a geography perspective, and we're looking to add one, maybe two geographies later in the year. And those are our biggest investments that drive demand generation. We'll continue to look at adding products as needed in our merchandising area that also is accretive. But we've built those teams, so it's not a lot of incremental SG&A. It's more incremental inventory if we find the right products and if we want to bring those products then into stock. The only other thing I'd add is that on the technology side, we do continue to invest in technology to create advantage long term. It doesn't show up as huge increases in SG&A, but certainly on a cash basis, it's a big part of our spend. Thank you. And our next question comes from Patrick Baumann with J.P. Morgan. Please go ahead. Oh, hi. Good morning. Thanks for the questions. A couple of quick ones. Fastenal talks to, I think, a need for high single-digit top-line growth to expand their margins, and then kind of mid-single-digit growth is where they can defend them. I'm just thinking about your long-term algo. Is it similar for Grainger where you need a high single-digit top line to get the high teens incrementals that you need to expand your margins? No. No. I mean, I'm not sure what Fastenal said. For us, I think it's probably more like mid-single digits. We'd see expansion, and lower single digits, it would be challenging. Okay. And then on tariffs, I know they haven't come yet. Maybe they won't. Who knows? But if you could update us on your global sourcing mix by some of the key regions, maybe China, Mexico, Canada would be helpful. And then how you'd plan to handle tariffs if they come. Will you price to try to hold your gross margin steady, or will you just put a surcharge in and simply pass the cost on to customers? Curious on any thinking around that. Yeah. I mean, in terms of our footprint, we have global sourcing that is probably 60%-70% in China right now. We are not uniquely exposed. Most of the things that we get from China, everybody gets from China. And we do have sourcing in Mexico. We've moved some product to Vietnam. We've moved some to India. So we have a broad footprint for sure. In terms of the uncertainty, the tariffs are still pretty strong. But in terms of tariffs, depending on what happens in the marketplace, the competitive environment, we would typically try to pass on and keep the same margins in what we pass on. It just depends on the nature of the tariffs, I'd say. And there's still a lot of uncertainty. But we certainly have a good sense for our footprint, and we've been actively moving some of it over the last couple of years. And your next question comes from Chris Dankert with Loop Capital Markets. Please state your question. Hey. Morning. Thanks for taking the question. I guess to circle back to that long-term algorithm, maybe on gross margin, historically, I think the target had been like a 37% gross margin. We're above that range. So it feels like because business mix is stabilizing to being a slight headwind, holding the line at 39% seems like that's pretty good performance. So in order to expand, even we've got to really lever on SG&A. I guess, would you push back on that characterization? Because I guess I'm surprised that you think you can expand even on 4 or 5% top line. Yeah. Yeah. I think that's a great question. Yeah, if you go back several years ago, you're exactly right. We were saying around this time, we were targeting to be about 37% total company gross margins. We've done better than that. As we look at our outlook here now and as everyone plans to look in the future, we felt noting that remaining stable around 39% based upon our value proposition and our two go-to-market models makes the most sense based upon what we're seeing from share gain as well as from competitive pricing. So I think you've got it right. I think we've included details like that on slide 24 that align with the long-term earnings framework. We would also agree that SG&A leverage is going to have to be the primary driver of any margin expansion going forward. No question. Got it. Thanks so much for the color there. I guess just finally, thinking about your market outgrowth formula as well, given your mix, you've got more healthcare, hospitality, government than kind of just the IP or ISM measurements would have, right? So I think it would make sense for you guys to outperform when industrial is slow. Maybe it's a harder push when you see the acceleration in the ISM. Any thoughts around how we should be interpreting that over time, perhaps? I mean, obviously, manufacturing is still our biggest segment. So roughly a third of our business is manufacturing. I would say there's probably over another third of the business that's probably tied to industrial activity. So we are very linked to industrial activity. I do think that the government business is a bit unique, and so is the healthcare business, but those don't make up as much of the total. So I think we're still very tied to IP, and that will always be the case given how our structure. Thank you. And our next question comes from Deane Dray with RBC Capital Markets. Please state your question. Yes. Good afternoon. Thanks for fitting me in. So just a question related to the tariffs. And I know your customers would never pre-position ahead of a tariff just because it's all MRO, and they're not really going to store ahead. But how about Grainger, just in terms of your product positioning? Did you, in any way, kind of do some accelerated ordering ahead of what could be a disruptive period, especially from China? In general, we evaluate every year whether or not we want to make pre-buys at the end of the year. We do a modest amount, and I don't think that really has changed for this year. So we probably did a few things that might have helped us in case this happens. But we don't get into business of trying to pre-buy in a big way, typically. So it's really not part of our motion. Good. And I'm correct about the customers. Absolutely not doing that either. Good. All right. And then second question, just on the outlook for M&A, just expectations for 2025, is that a lever that Grainger would be interested in pulling? And broadly, for the distribution sector, there's been some announcements of some sizable deals. You think this is a sea change? You still have a highly, highly fragmented market, and organic growth has still been the primary strategy. But is there anything in the way of M&A that might accelerate that? Our strategy doesn't change. We think we're primarily an organic growth company. We do look at any opportunities that come up. There are certain subsets of distribution for which I think M&A probably makes more sense, for sure. And they don't necessarily apply to us. But the short answer is we are always looking, but we expect organic growth to be our primary driver. Thank you. And we have reached the end of the question-and-answer session. I will now turn the call back over to D. Merriwether for closing remarks. First of all, thanks for joining. I continue to be very happy with our progress. I think, as we talked about here, our earnings algorithm doesn't change. We continue to focus on providing the best customer experience, on having an engaged team, and on making sure we deliver our financial commitments. And we feel very good about our going in position to 2025, no matter what the market. And as we discussed, if obviously the market's better than we project, we will do better. That's the way this works. But right now, we think we have all the tools in place to have a really good year. So thanks for joining us today. Thank you. And with that, we conclude today's call. All parties may disconnect. Have a good day.