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W.W. Grainger, Inc. (GWW - Analyst Report) announced that it has signed a contract to divest its brands, Gempler's, Ben Meadows and AW Direct, to Brillion, Wis.-based Ariens Company. Ariens Company is a leading manufacturer of outdoor power equipment for both consumer and professional use.

The three brands are all direct marketing companies providing equipment and supplies to niche professional markets. Gempler's serves the agricultural, horticultural, grounds maintenance, and contractor markets; Ben Meadows serves the forestry, fire and rescue, resource management and grounds maintenance markets; AW Direct serves the towing and service vehicle markets.

These three brands came under the umbrella of Grainger's Specialty Brands portfolio and represent an estimated $90 million in revenues in 2013. The divestiture is however not expected to have a material effect on Grainger’s earnings. The transaction is poised to close by the end of 2013.  

GHC Specialty Brands is the result of Grainger's acquisition of Lab Safety Supply in 1992. Since its acquisition, Lab Safety Supply acquired numerous other brands, including Highsmith, Ben Meadows, Gempler’s, AW Direct, McFeely's Square Drive Screws, Professional Equipment and Rand Materials. In Dec 2010, Grainger divested the Highsmith brand to Demco. Since then, Grainger has focused on selling some of its specialty brands to focus more closely on its core offerings and distribution capabilities.

This recent divestiture marks the completion of the realignment of the Specialty Brands portfolio. As per the findings of the review, these direct marketing brands within the Specialty Brands were not in sync with the company's long-term focus.

We appreciate Grainger’s focus on expanding its product offerings as well as the share of its private label products. The company’s businesses continue to expand across its operating regions, mainly Asia and Latin America. Grainger also persists to invest in e-commerce, which is growing two-fold compared to other channels and is deemed the company’s most profitable channel.

On the flipside, Grainger's overall sales growth is on a downward trend. Pricing and unfavorable foreign exchange were headwinds in the third quarter and are likely to remain so for the balance of the year. Unlike 2012, Grainger is not expecting any interim price increases for the remainder of 2013.

For 2013, Grainger has projected incremental growth-related spending of $135 million. Even though acquisition-related initiatives will lead to additional share gains in the future, this increased spending will weigh on margins.

Lake Forest, IL-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 carries a short-term Zacks Rank #4 (Sell). However, better-ranked stocks in the same sector include Xylem Inc. (XYL - Analyst Report), ScanSource, Inc. (SCSC - Snapshot Report) and Hudson Technologies Inc. (HDSN - Snapshot Report). While Xylem carries a Zacks Rank #1 (Strong Buy), ScanSource and Hudson Technologies hold a Zacks Rank #2 (Buy).

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