Grainger August Sales Rise 10%

W.W. Grainger Inc. (GWW - Analyst Report) reported August sales growth of 10% on a year-over-year basis. Grainger continues to post double digit growth in sales. Favorable foreign exchange has added one percentage point to growth.

Excluding the impacts of foreign currency exchange rates, daily sales increased 9% during the reported month. Higher volume contributed 8 percentage points, better pricing contributed 3 percentage points and sales related to Hurricane Irene contributed one percentage point. However, a 3-percentage point decrease from oil spill-related sales in the Gulf of Mexico in 2010 was a partial offset.

Geographically, daily sales in the United States increased 8%, while Canada saw a jump of 21% (14% increase in local currency). Daily sales for the company's Other Businesses segment, which includes operations in Japan, Mexico, India, Puerto Rico, China and Panama, increased 23%.

The month of August had 23 selling days, a day more compared with the prior year period. However, the third quarter will have the same number of selling days (64) as the corresponding period in 2010.

Grainger reported strong adjusted earnings of $2.22 per share in the second qaurter, comfortably exceeding the Zacks Consensus Estimate of $2.11 per share and $1.65 earned in the prior-year quarter. In its earnings conference call, the company raised its sales growth in the range of 9% to 10% compared with the prior guidance range of 7% to 10%. The company also guided 2011 earnings between $8.40 and $8.70 per share, up from prior the guidance of $8.10 to $8.60.

The Zacks Consensus Estimate for third-quarter 2011 is $2.31 per share. For full years 2011 and 2012, the Zacks Consensus Estimates are, respectively, $8.73 per share and $9.75 per share.

We maintain our Neutral recommendation on Grainger. The quantitative Zacks #3 Rank (short term Hold rating) on the stock indicates no clear directional pressure on the shares over the near term.

Illinois-based Grainger is a leading North American distributor of material handling equipment including safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, etc. The company’s services comprise inventory management and energy efficiency solutions. The company competes with Applied Industrial Technologies Inc. (AIT - Snapshot Report) and WESCO International Inc. (WCC - Analyst Report).

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