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Grainger (GWW) Q2 Earnings & Sales Lag, Revises FY16 View

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W.W. Grainger, Inc.’s (GWW - Free Report) second-quarter 2016 adjusted earnings per share of $2.89 decreased around 12% from the prior-year figure of $3.27. Earnings also missed the Zacks Consensus Estimate of $3.18.

Including one-time items, earnings were $2.79 per share in the reported quarter, down 14% year over year.

Operational Update

Revenues of roughly $2.56 billion went up 2% from $2.52 billion in the year-ago quarter. However, it fell short of the Zacks Consensus Estimate of $2.59 billion. There were 64 selling days in the reported quarter, same as the prior-year period.

The sales increase for the quarter included a 4 percentage point contribution from the Cromwell acquisition. Excluding acquisition, organic sales fell 2% due to a 1 percentage point reduction in volumes and a 1 percentage point drop in price.

Cost of sales increased 5.1% year over year to $1.52 billion. Gross profit decreased 3% to $1.04 billion from $1.07 billion in the year-ago quarter. Gross margin declined 100 basis points to 40.6%.  

Grainger’s adjusted operating income in the quarter went down 10% to $323.1 million from $358.8 million the prior-year quarter. Operating margin fell to 12.6% in the quarter from 14.2% in the prior-year quarter.

Segment Performance

Revenues for the United States segment went down 3% year over year at $1.98 billion. Adjusted operating income for the segment decreased 8% year over year to $348.3 million.

Revenues of $194.4 million from the Canadian Acklands-Grainger business dropped 19% in U.S. dollars and 16% in local currency from the year-ago quarter. The segment reported an adjusted operating loss of $0.98 million, against an operating income of $0.95 million in the year-ago quarter.

Revenues from Other businesses (which include Asia, Europe and Latin America) increased 49% year over year to $474 million. The segment’s adjusted operating profit improved significantly to $29.7 million, from $17.2 million in the prior-year quarter.

Financial Position

Grainger had cash and cash equivalents of $316 million at the end of second-quarter 2016, compared with $290 million at the end of 2015. Cash flow from operations came in at $326.4 million for the six-months ended Jun 30, 2016 compared with $369.5 million in the comparable year-ago period.

As of quarter end, Grainger’s long-term debt increased to $1.77 billion, compared with $1.39 billion at the end of 2015. During the second quarter, the company returned $315 million in cash to shareholders in the form of share repurchases and dividends.

Guidance

Grainger revised its sales growth guidance to 1%–4% for 2016 from the previous range of 0%–6%. The company also revised its earnings per share outlook to $11.20–$12.20 from $11.00–$12.80.

GRAINGER W W Price, Consensus and EPS Surprise

GRAINGER W W Price, Consensus and EPS Surprise | GRAINGER W W Quote

Grainger’s Canadian business continues to be affected by low oil prices, fires in Fort McMurray and unfavorable foreign exchange. Nevertheless, strong performance of single channel online businesses and attractive growth opportunities in the large and fragmented MRO market bodes well for the company’s growth.

W.W. Grainger is a leading North-American distributor of material handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, forestry and agriculture equipment, building and home inspection supplies, vehicle and fleet components, and various aftermarket components.

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

Some better-ranked stocks in the same sector are Ashtead Group plc (ASHTY - Free Report) , Harsco Corp. (HSC - Free Report) and Aggreko plc (ARGKF - Free Report) . While Ashtead Group and Harsco sport a Zacks Rank #1 (Strong Buy), Aggreko carries a Zacks Rank #2 (Buy).

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