Back to top

Bear of the Day: Grainger (GWW)

Read MoreHide Full Article

W.W. Grainger, Inc. (GWW - Free Report) is struggling in its largest market. This Zacks Rank #5 (Strong Sell) is one of the few industrial-focused companies to lower full year guidance this earnings season.

Grainger supplies maintenance, repair and operating products in North America, Europe, Asia and Latin America. Nearly everyone in an industrial or manufacturing industry has probably used a Grainger product at some point.

A Miss in the First Quarter

On April 18, Grainger reported its first quarter results and missed on the Zacks Consensus by 4.3%. EArnings were just $2.88 versus the consensus of $3.01.

Sales increased, but only 1%, to $2.5 billion year-over-year.

Grainger instituted a new pricing strategy in January and February of this year which included new web prices on about 450,000 SKUs to drive growth. It also negotiated large customer contracts with more competitive pricing for infrequently purchased items.

As a result, the customers with access to the lower prices bought more than company expectations in the first quarter.

It was going to wait until 2018 to institute the web pricing on all SKUs but it now will do it by the third quarter of 2017.

As a result, in the quarter, more product was sold but at lower prices and that will also be the result later in the year when the pricing is on all SKUs.

Lowered Full Year Guidance

As a result of its pricing actions, the company lowered 2017 sales and earnings per share guidance.

Sales growth is now expected to be just 1% to 4% for the year, a reduction from its previous forecast of 2% to 6%.

While earnings per share are now expected in the $10.00 to $11.30 range, down from the company's prior range of $11.30 to $12.40.

It's no surprise that the analysts all cut estimates to get in line with the new guidance.

9 estimates were lowered for 2017, pushing the Zacks Consensus down to $10.53 from $11.87. That's an earnings decline of 9% from 2016.

They also lowered 2018 estimates, pushing the consensus down to $11.21 from $13.06.

Shares Sink in 2017

Shares of Grainger were crushed down on the news of the lower full year guidance.

They're down 18% year-to-date but they actually aren't that cheap. They still trade with a forward P/E of 18.3.

Additionally, Grainger announced on April 26, this was after the earnings miss, that it was increasing its dividend for the 46th consecutive year.

Grainger is a dividend aristocrat, one of those rare big cap companies that keeps raising their dividend payout in rain or shine.

This year, it is raising it 5% to $1.28 per share. It is payable on June 1 to shareholders of record as of May 8, 2017.

It is currently yielding 2.5%.

But with earnings on the decline through 2018, investors might want to look elsewhere in the industry like to HD Supply Holdings (HDS - Free Report) which is a Zacks Rank #3 (Hold) but trades with a forward P/E of just 12.1.

The Best & Worst of Zacks

Today you are invited to download the full, up-to-the-minute list of 220 Zacks Rank #1 ""Strong Buys"" free of charge. From 1988 through 2015 this list has averaged a stellar gain of +25% per year. Plus, you may download 220 Zacks Rank #5 ""Strong Sells."" Even though this list holds many stocks that seem to be solid, it has historically performed 6X worse than the market.  See these critical buys and sells free >> 

In-Depth Zacks Research for the Tickers Above

Normally $25 each - click below to receive one report FREE:

HD Supply Holdings, Inc. (HDS) - free report >>

W.W. Grainger, Inc. (GWW) - free report >>

More from Zacks Bear of the Day

You May Like