Grainger (GWW) to Report Q2 Earnings: Is a Beat in Store?

Zacks Equity Research Published on July 16, 2018

W.W. Grainger, Inc. (GWW - Free Report) is scheduled to report second-quarter 2018 results before the opening bell on Jul 18.

In the last quarter, Grainger posted earnings of $4.18 per share, beating the Zacks Consensus Estimate by a significant margin of around 23%. The company maintained its trend of surpassing estimates in the trailing four quarters, recording an average positive earnings surprise of 18.7%.

We expect Grainger to score an earnings beat in the to-be-reported quarter as well.

W.W. Grainger, Inc. Price and EPS Surprise

Zacks ESP: Grainger has an Earnings ESP of +0.69% as the Most Accurate estimate of $3.80 is pegged higher than the Zacks Consensus Estimate of $3.77. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: The company carries a Zacks Rank #3, which when combined with a positive ESP makes us reasonably confident of an earnings beat.

Conversely, we caution against stocks with a Zacks Ranks #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is witnessing negative estimate revisions.

Factors Behind Better-Than-Expected Results

The company is in the middle of a substantial transformation of the Canada business. Its focus on improving the business’ cost structure through branch reductions, improving service to customers and the creation of North American centers of excellence will drive results. However, the segment continues to face rising expenses. Per the Zacks Consensus Estimates, net sales in the Canada segment are likely to dip 4% to $182 million in the second quarter. Moreover, the segment will likely report an adjusted operating loss of $21 million.

The weakness in the Canada operations will be offset by continued momentum in the United States segment. Focus on pricing strategies, volume growth and an improving demand environment remain catalysts for the segment’s performance in the quarter to be reported. The Zacks Consensus Estimate for Grainger’s quarterly sales in the United States is $2.1 billion, reflecting around 7% year over year rise. The Zacks Consensus Estimate for adjusted operating income of the segment is pegged at $333 million in the second quarter.

In the second quarter, Grainger is expected to benefit from improved price mix, digital marketing strategies and the impact of the tax reform. However, elevated expenses are likely to affect results. The Zacks Consensus Estimate for Grainger’s earnings per share is pegged at $3.77 for the first quarter, reflecting year-over-year growth of 38%. The Zacks Consensus Estimate for total sales of $2.81 billion also indicates nearly 8% increase from the prior-year quarter.

In addition, Grainger’s price performance has been impressive over the past year. Shares of the company have appreciated around 80% outperforming growth of 51% recorded by the industry.

Other Stocks to Consider

Here are some other companies that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this quarter:

HD Supply Holdings, Inc. has an Earnings ESP of +2.07% and a Zacks Rank #2. The stock has gained 46% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.

Roper Technologies, Inc. (ROP - Free Report) has an Earnings ESP of +0.32% and a Zacks Rank #2. Its shares have gained 20% in the past year.

Cintas Corporation (CTAS - Free Report) has an Earnings ESP of +0.88% and a Zacks Rank #3. The company’s shares have been up 55% during the past year.

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