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Grainger (GWW) Q2 Earnings and Revenues Surpass Estimates

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W.W. Grainger, Inc. (GWW - Free Report) reported second-quarter 2020 adjusted earnings per share (EPS) of $3.75, which beat the Zacks Consensus Estimate of $3.48 by 8%. However, the bottom line declined 19% year over year primarily on account of lower operating earnings that were partially offset by lower average shares outstanding.

During the second quarter, Grainger recorded a $109 million pretax loss from the sale of the Fabory business. Including this, earnings came in at $2.10 in the reported quarter. The figure plunged 55% from the year-ago quarter’s $4.67.

Grainger’s revenues declined 2% to $2.84 billion from the prior-year quarter figure of $2.89 billion. The top line surpassed the Zacks Consensus Estimate of $2.75 billion.

Daily sales for the quarter decreased 1.9% compared with the prior-year quarter. The decline in sales was primarily due to volume decreases including unfavorable product mix from heightened levels of pandemic-related sales, and decreased volume of non-pandemic products. Foreign exchange had an unfavorable impact of 10 basis points.

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

Operational Update

Adjusted cost of sales increased 3% year over year to $1,821 million. Gross profit was down 9% year over year to $1,016 million. Gross margin contracted to 35.8% in the quarter under review from 38.7% in the prior-year quarter primarily due to pandemic-related impacts, including product mix and increased freight expense, particularly in the U.S. segment. The continued business unit mix impact from faster growth in the lower-margin endless assortment businesses was also instrumental in lower gross margins.

Grainger’s adjusted operating income in the second quarter declined 16% to $315 million from the $377 million in the prior-year quarter. Adjusted operating margin contracted 190 bps year over year to 11.1% in the quarter, mainly due to lower gross margins.

Financial Position

The company had cash and cash equivalents of $1,603 million at the end of second-quarter 2020, significantly up from $360 million at 2019 end. Cash provided by operating activities increased to $476 million in the first half of 2020 from the year-ago comparable figure of $450 million.

Long-term debt was $3,301 million as of Jun 30, 2020, compared with $1,914 million as of Dec 31, 2019. The company returned $86 million to shareholders through dividends in the quarter. Earlier, Grainger had announced that it is pausing share repurchases in the wake of the coronavirus pandemic.

Price Performance

Over the past three months, Grainger’s shares have gained 25.7%, compared with the industry’s growth of 29.0%.

Zacks Rank and Stocks to Consider

Grainger currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Lakeland Industries, Inc. (LAKE - Free Report) , IIVI Incorporated (IIVI - Free Report) and Energous Corporation (WATT - Free Report) . While Lakeland Industries and IIVI Incorporated sport a Zacks Rank #1 (Strong Buy), Energous Corporation carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lakeland Industries has a projected earnings growth rate of 418% for the current fiscal. The company’s shares have appreciated 52% in the past three months.

IIVI Incorporated has an estimated earnings growth rate of 29% for the ongoing year. The company’s shares have rallied 46% in the past three months.

Energous has an expected earnings growth rate of 44% for 2020. The stock has surged 50% over the past three months.

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