Back to top

Analyst Blog

W.W. Grainger, Inc. (GWW - Analyst Report) reported a 4% year-over-year increase in sales in Aug 2013, close to the year's slowest growth rate of 3% reported in March. The increase was flat compared with the prior-month’s growth rate and is well below the 10% rise in Aug 2012.

Aug 2013 had 22 selling days, compared with 23 in last year. The gain in Aug sales stemmed from higher volumes (5%), and acquisitions (1%), partly offset by a 1% decline from foreign exchange and lower sales of seasonal products (1%).

Geographically, daily sales in the U.S. rose 5%, helped by higher volume (5%), and acquisitions (1%), partly offset by decline from lower sales of seasonal products (1%) due to cooler weather than the previous year.

Both light and heavy manufacturing sales as well as natural resources rose in the mid- single-digits. It was followed by low single-digit gains in Commercial, Government, Retail, Contractors and Resellers.

Sales to the Government sector increased overall as daily sales to state and local governments, which account for more than 70% of government sales, grew in the mid-single digit. On the contrary, daily sales for the federal government business declined in low-double digits compared with the prioryear, but increased sequentially.

Daily sales in Canada declined 1% in the U.S. currency, but it increased 4% in local currency due to rise in volume. Growth was driven by strength in oil & gas, utilities and forestry end markets.

Daily sales at Grainger’s other businesses, which include operations in Asia, Europe and Latin America, increased 5% as higher volume and favorable pricing (13%) was offset by unfavorable foreign currency translation (8%).

According to Grainger, daily sales growth in the U.S in September is trending above August level. However, sales is reportedly lower than August outside U.S. due to slowing sales in local currency and unfavorable foreign exchange. Thus, overall September sales growth so far is in line with August. Third quarter 2013 will have 64 selling days, one more than  third quarter 2012.

Grainger reported second-quarter 2013 earnings of $3.03 per share, up 15% from $2.63 a year ago and ahead of the Zacks Consensus Estimate of $2.96. Revenues in the quarter were $2,381 million, up 6% from $2,249 million in the year-ago period, but below the Zacks Consensus Estimate of $2,392 million. Grainger expects earnings per share in the range of $11.40–$12.00 for fiscal 2013. Sales growth is expected in the range of 5% to 8%.

Grainger expects foreign exchange to negatively impact the full-year sales by 1%. The company expects 4% to 10% daily sales growth for the remainder of the year. The company is not planning any interim price increase for the remainder of the year owing to the low-inflation environment for commodities.

Grainger will continue to benefit from its focus on expanding its sales force, product offerings and strengthening its businesses across all operating regions, mainly in Asia and Latin America, as well as continued investment in e-commerce – its most profitable channel.

However, throughout 2013, Grainger’s daily sale growth rate has ranged from a low of 3% (March) to 8% (Jan, April). Furthermore, Grainger’s incremental growth will weigh on margins in the short term. Sequestration remains a headwind for the federal government business, particularly within the Military.

Lake Forest, Ill.-based Grainger is a leading North American distributor of material handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, forestry and agriculture equipment, building and home inspection supplies, vehicle and fleet components, and various aftermarket components.

Grainger currently retains a short-term Zacks Rank #3 (Hold). Graham Corp. (GHM - Snapshot Report) and Gorman-Rupp Co. (GRC - Snapshot Report), both with a Zacks Rank #1 (Strong Buy), and Codexis, Inc. , with a Zacks Rank #2 (Buy), are favorable options for investors.

Please login to Zacks.com or register to post a comment.