W.W. Grainger, Inc. (GWW - Free Report) , the leading broad line supplier of maintenance, repair and operating (MRO) products, has reaffirmed the sales and earnings guidance for 2017 and provided the same for 2018 at its analyst meeting. Continued focus on pricing actions, resetting of the Canadian business model and bright prospects in the company’s single-channel business are the key players behind this encouraging outlook.
Grainger anticipates favorable sales and earnings per share trends in 2017. For the full year, the company reiterated its sales growth range of 1.5-2.5% and earnings per share outlook band of $10.40-$10.90. It also projects revenues of around $10.3 billion. Further, ROIC for the current year is anticipated to be around 23%.
For full-year 2018, Grainger forecasts sales growth in the range of 3-7% and earnings per share between $10.60 and $11.80.
Grainger also reiterated its long-term operating margin target range of 12-13% in 2019. The company’s top priority involves accelerating growth with large and medium customers in the United States.
Let’s discuss in detail the factors that drove the buoyancy in less than a month.
Upbeat Pricing Actions
Grainger’s pricing initiatives are driving solid growth. The company will continue its pricing strategies in the United States through 2018 and expects to cut down prices by 6.9% during this period. Further, it expects the new pricing to help it gain market share in the fragmented industrial distribution industry.
The company witnessed robust volume growth of 7% in the U.S segment in the recently reported quarter, driven by positive response to pricing actions as well as an improved demand environment. Customer spending in the United States continues to improve and the company anticipates this market to grow 2-3% in 2017.
Canadian Business Model
Grainger is taking immense efforts to bring its Canadian business back to profitability. It remains focused on improving unprofitable customer business by renegotiating poor contracts, along with developing onsite service model.
Furthermore, the company continues to manage expenses through branch optimization. It announced the closure of 59 branches in 2017 and eliminated poorly performing assets. Grainger expects to close 54 branches in 2018 and will keep 30-35 branches in high-density locations at end-state. These actions will accelerate profitability for the business.
Growing Single-Channel Business
Grainger’s single-channel online businesses continue to deliver sturdy sales growth and improved profits. The company is investing in critical areas, particularly in digital investments to ensure that its digital capabilities are up to date and poised for future growth. Revenues will benefit as digital marketing strategies ramp and boost demand.
Share Price Performance
In a year, Grainger has underperformed the industry with respect to price performance. The stock has lost around 8.9%, while the industry incurred a loss of 3.4%.
Grainger currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the industrial product space include Chart Industries, Inc. (GTLS - Free Report) , IDEX Corporation (IEX - Free Report) and Nordson Corporation (NDSN - Free Report) . All the three stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Chart Industries has an expected long-term earnings growth rate of 20%.
IDEX has an expected long-term earnings growth rate of 13%.
Nordson has an expected long-term earnings growth rate of 15%.
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