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W.W. Grainger (GWW) Up 2.3% Since Earnings Report: Can It Continue?
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It has been about a month since the last earnings report for W.W. Grainger, Inc. (GWW - Free Report) . Shares have added about 2.3% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is GWW due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Grainger Q1 Earnings & Sales Beat, 2018 Outlook Up
Grainger’s first-quarter 2018 adjusted EPS of $4.18 rose around 45% year over year. Further, earnings beat the Zacks Consensus Estimate of $3.41 by 23%.
Including one-time items, such as restructuring charges and other charges, earnings came in at $4.07 per share in the reported quarter, up 39% from $2.93 recorded in the year-ago quarter.
Grainger reported revenues of $2,766 million, up 9% from the prior-year quarter’s $2,541 million. This was driven by an increase of 8 percentage point (pp) in volume growth, 2 pp in foreign exchange and 1 pp in sales of seasonal products, partially offset by a decline of 1 pp in price and 1 pp owing to the divestiture of a specialty business.
Revenues also surpassed the Zacks Consensus Estimate of $2,708 million. There were 64 selling days in the reported quarter, same as in first-quarter 2017.
Grainger’s stellar first-quarter performance was backed by strong volumes in its U.S. business, driven by an improving demand environment. The company’s single channel and international businesses also contributed significantly.
Operational Update
Cost of sales increased 10% year over year to $1,674 million. Gross profit rose 7% to $1,092 million from $1,019 million in the year-ago quarter. Gross margin contracted 50 basis points (bps) to 39.5%.
Adjusted operating income in the reported quarter increased 19% to $343 million from $287 million in the year-earlier quarter. Adjusted operating margin expanded 110 bps to 12.4% in the quarter from 11.3% a year ago.
Segment Performance
Revenues at the U.S. segment rose 8% year over year to $2,107.7 million, courtesy of 9-pp increase in volume, 1 pp in intercompany sales and 1 pp in sales of seasonal products, partially offset by declines of 2 pp in price and 1 pp owing to the divestiture of a specialty business.
Revenues of $181.8 million from the Canada segment dropped 2% in U.S. dollars and 6% in local currency. The 6% decline was due to a 13-pp decline in volumes, partially offset by 7 pp of higher prices. Revenues from Other businesses (which include Asia, Europe and Latin America) climbed 18% year over year to $588 million, primarily driven by a 24% sales growth in single-channel online business.
Financial Position
Grainger had cash and cash equivalents of $302 million at the end of first-quarter 2018 compared with $326.9 million at 2017-end. Cash provided by operating activities decreased to $146.9 million in the first quarter from $180.9 million in the prior-year quarter.
Long-term debt was $2.24 billion as of Mar 31, 2018, compared with $2.25 billion as of Dec 31, 2017. During the first quarter, the company returned $245 million in cash to shareholders through $72 million in dividends and $173 million to buy back 668,000 shares.
Guidance
Grainger raised its 2018 sales and earnings per share guidance. The company now expects sales growth of 5-8% compared to the prior guidance of 3-7%. Further, the outlook for earnings per share has been lifted to $14.30-$15.30 from the prior band of $12.95-$14.15. The company is poised to gain from strategic actions taken in the United States and Canada.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been nine revisions higher for the current quarter.
At this time, GWW has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. The stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the stock is suitable for value and growth investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise GWW has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
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W.W. Grainger (GWW) Up 2.3% Since Earnings Report: Can It Continue?
It has been about a month since the last earnings report for W.W. Grainger, Inc. (GWW - Free Report) . Shares have added about 2.3% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is GWW due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.
Grainger Q1 Earnings & Sales Beat, 2018 Outlook Up
Grainger’s first-quarter 2018 adjusted EPS of $4.18 rose around 45% year over year. Further, earnings beat the Zacks Consensus Estimate of $3.41 by 23%.
Including one-time items, such as restructuring charges and other charges, earnings came in at $4.07 per share in the reported quarter, up 39% from $2.93 recorded in the year-ago quarter.
Grainger reported revenues of $2,766 million, up 9% from the prior-year quarter’s $2,541 million. This was driven by an increase of 8 percentage point (pp) in volume growth, 2 pp in foreign exchange and 1 pp in sales of seasonal products, partially offset by a decline of 1 pp in price and 1 pp owing to the divestiture of a specialty business.
Revenues also surpassed the Zacks Consensus Estimate of $2,708 million. There were 64 selling days in the reported quarter, same as in first-quarter 2017.
Grainger’s stellar first-quarter performance was backed by strong volumes in its U.S. business, driven by an improving demand environment. The company’s single channel and international businesses also contributed significantly.
Operational Update
Cost of sales increased 10% year over year to $1,674 million. Gross profit rose 7% to $1,092 million from $1,019 million in the year-ago quarter. Gross margin contracted 50 basis points (bps) to 39.5%.
Adjusted operating income in the reported quarter increased 19% to $343 million from $287 million in the year-earlier quarter. Adjusted operating margin expanded 110 bps to 12.4% in the quarter from 11.3% a year ago.
Segment Performance
Revenues at the U.S. segment rose 8% year over year to $2,107.7 million, courtesy of 9-pp increase in volume, 1 pp in intercompany sales and 1 pp in sales of seasonal products, partially offset by declines of 2 pp in price and 1 pp owing to the divestiture of a specialty business.
Revenues of $181.8 million from the Canada segment dropped 2% in U.S. dollars and 6% in local currency. The 6% decline was due to a 13-pp decline in volumes, partially offset by 7 pp of higher prices. Revenues from Other businesses (which include Asia, Europe and Latin America) climbed 18% year over year to $588 million, primarily driven by a 24% sales growth in single-channel online business.
Financial Position
Grainger had cash and cash equivalents of $302 million at the end of first-quarter 2018 compared with $326.9 million at 2017-end. Cash provided by operating activities decreased to $146.9 million in the first quarter from $180.9 million in the prior-year quarter.
Long-term debt was $2.24 billion as of Mar 31, 2018, compared with $2.25 billion as of Dec 31, 2017. During the first quarter, the company returned $245 million in cash to shareholders through $72 million in dividends and $173 million to buy back 668,000 shares.
Guidance
Grainger raised its 2018 sales and earnings per share guidance. The company now expects sales growth of 5-8% compared to the prior guidance of 3-7%. Further, the outlook for earnings per share has been lifted to $14.30-$15.30 from the prior band of $12.95-$14.15. The company is poised to gain from strategic actions taken in the United States and Canada.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been nine revisions higher for the current quarter.
W.W. Grainger, Inc. Price and Consensus
W.W. Grainger, Inc. Price and Consensus | W.W. Grainger, Inc. Quote
VGM Scores
At this time, GWW has an average Growth Score of C, though it is lagging a lot on the momentum front with an F. The stock was also allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the stock is suitable for value and growth investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. It comes with little surprise GWW has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.