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Will W.W. Grainger (GWW) Miss Earnings Estimates?

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W.W. Grainger, Inc. (GWW - Free Report) , a broad line supplier of maintenance, repair and operating (MRO) products, is slated to report second-quarter fiscal 2014 results on Jul 17. In the last quarter, it posted a positive surprise of 3.37%. Let’s see how things are shaping up for this announcement.

Factors Influencing this Quarter

Grainger reported a 6% year-over-year increase in sales in May 2014. The growth has exceeded the prior-month increase of 5% and is also up from the growth rate of 5% achieved in May last year. Grainger’s overall sales have grown from the slow start at the beginning of the year due to inclement weather. So far in 2014, the United States has delivered the highest growth of 8% in May.

Even though Canada continued to be in the red, the rate of decline has meandered to single digit from the double-digit dip reported in the previous months. Grainger’s business in Canada however continues to face a sluggish macroeconomic environment and unfavorable currency exchange. The weakness in the Canadian economy is due to lower commodity prices and a reduction in Canadian exports.

According to Grainger, daily sales growth in June was in line with May. Grainger remains focused on expanding its product offerings, sales force as well as shares of its private label products. Grainger also continues to grow through acquisitions.

Earnings Whispers?

Our proven model does not conclusively show that Grainger is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. This is not the case here, as you will see below.

Zacks ESP: Grainger has an Earnings ESP (Expected Surprise Prediction) of -1.61%. This is because the Most Accurate estimate stands at $3.06 per share while the Zacks Consensus Estimate is higher at $3.11, resulting in -1.61% ESP.

Zacks Rank #4 (Sell): Grainger has a Zacks Rank #4 which when combined with a -1.62% ESP makes surprise prediction unlikely. We caution against stocks with Zacks Rank #4 and #5 (Sell rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks that Warrant a Look

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

Caterpillar Inc. (CAT - Free Report) has an earnings ESP of +0.67% and a Zacks Rank #1 (Strong Buy).

Nordson Corporation (NDSN - Free Report) has an earnings ESP of +0.89% and a Zacks Rank #2 (Buy).

Kennametal Inc. (KMT - Free Report) has an earnings ESP of +1.12% and a Zacks Rank #3 (Hold).

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