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Grainger's (GWW) Q3 Earnings & Sales Beat Estimates, Up Y/Y

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W.W. Grainger, Inc. (GWW - Free Report) reported third-quarter 2020 adjusted earnings per share (EPS) of $4.52, which beat the Zacks Consensus Estimate of $4.13. The bottom line increased 6% year over year primarily on improved operating earnings and lower average shares outstanding in the current period, partly offset by a higher tax rate.

Including one-time items, earnings came in at $4.41 in the reported quarter. The figure increased 4% from the year-ago quarter’s $4.25.

Grainger’s revenues were up 2.4% year over year to $3.02 billion. The top line also surpassed the Zacks Consensus Estimate of $2.97 billion.

Daily sales for the quarter increased 2.4% compared with the prior-year quarter. This increase in sales primarily resulted from share gains in the U.S. segment and significant growth in the endless assortment businesses, offsetting declines in the Canada segment.

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

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

W.W. Grainger, Inc. price-consensus-eps-surprise-chart | W.W. Grainger, Inc. Quote

Operational Update

Adjusted cost of sales increased 5.2% year over year to $1,944 million. Gross profit was down 2.3% year over year to $1,074 million. Gross margin contracted to 35.6% in the quarter from 37.2% in the prior-year quarter due to pandemic-induced headwinds. The continued business unit mix impact from faster growth in the lower-margin endless assortment businesses also hurt gross margins.

Grainger’s adjusted operating income in the third quarter climbed 10.3% year over year to $374 million. Adjusted operating margin expanded to 12.4% compared with the prior-year quarter’s 11.5%.

Financial Position

The company had cash and cash equivalents of $859 million at the end of third-quarter 2020, substantially up from the $360 million witnessed at the end of 2019. Cash provided by operating activities increased to $787 million in the first nine-month period of 2020 from the year-ago comparable figure of $770 million.

Long-term debt was $2,388 million as of Sep 30, 2020, compared with $1,914 million as of Dec 31, 2019. The company returned $82 million to shareholders through dividends in the quarter.

The company repaid the revolving credit facility and increased the dividend in the September-end quarter. It also plans to restart its share-repurchase program in the fourth quarter of 2020.

Price Performance

Over the past six months, Grainger’s shares have gained 44.5% compared with the industry’s growth of 81.5%.

Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector include Sealed Air Corporation (SEE - Free Report) , Lawson Products, Inc. (LAWS - Free Report) and Fortune Brands Home & Security, Inc. (FBHS - Free Report) , each carrying a Zacks Rank of 2 (Buy), currently. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Sealed Air has a projected earnings growth rate of 3.9% for the current year. Shares of the company have gained 46.9% over the past six months.

Lawson Products has an estimated earnings growth rate of 3.4% for 2020. The company’s shares have rallied 59.8% in the past six months.

Fortune Brands has an expected earnings growth rate of 6.9% for the ongoing year. In the past six months, the stock has surged 105.7%.

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