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Grainger (GWW) Down 3.4% Since Earnings Report: Can It Rebound?
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It has been about a month since the last earnings report for W.W. Grainger, Inc. (GWW - Free Report) . Shares have lost about 3.4% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Grainger Q3 Earnings, Revenues Beat on Higher Volumes
Grainger’s third-quarter 2017 adjusted earnings per share of $2.90 came in lower than the prior-year figure of $3.06 by 5%. However, earnings, beat the Zacks Consensus Estimate of $2.57 by 13%.
Including one-time items such as restructuring charges and branch gains, earnings came in at $2.79 per share in the reported quarter, down 9% from $3.06 in the year-ago quarter.
The company witnessed strong volumes in its U.S. business driven by strategic pricing initiatives as well as an improving demand environment. Grainger noted solid response, particularly from the mid-sized customers and also from digital marketing activities that began in mid-August. The single channel online businesses continued to deliver strong sales growth and improved profits. However, the Canadian business continues to be challenged.
Operational Update
Grainger reported revenues of $2,636 million, up 1.5% from the prior-year quarter figure of $2,596 million, driven by an increase of 8 percentage point (pp) from volume growth, partly offset by a decline of 4 pp in price and 1 percentage point from the divestiture of a specialty business in the United States in mid-July. Hurricane-related sales in the United States contributed 1 pp but were negated by a decline of 1 percentage point in seasonal sales. The figure marginally also beat the Zacks Consensus Estimate of $2,629 million.
There were 63 selling days in the reported quarter, one less than third-quarter 2016. The company continues to streamline portfolio with the divestiture of a non-core U.S. specialty business, which impacted sales in the quarter.
Cost of sales increased 4% year over year to $1,619 million. Gross profit decreased 2% to $1,017 million from $1,040 million recorded in the year-ago quarter. Gross margin contracted 140 basis points (bps) to 38.6%.
Grainger’s adjusted operating income in the quarter decreased 13% to $291 million from $332 million recorded in the prior-year quarter. Adjusted operating margin fell 180 bps to 11.0% in the quarter from 12.8% in the year-earlier quarter.
Segment Performance
Revenues for the U.S. segment edged down 0.6% year over year to $2,016 million, resulting from a 7 pp increase from volume partially offset by declines of 5 pp from price and 1 pp from the divestiture of a specialty business. Further, a benefit of 1 pp from intercompany sales and an increase 1 pp from hurricane-related sales were offset by declines of 1 pp from the Jul 4 holiday timing and 1 pp from seasonal sales. Adjusted operating income for the segment decreased 13% year over year to $303 million due to lower gross profit as a result of strategic pricing initiatives.
Revenues of $188 million from the Canada segment increased 5% in U.S. dollars and 2% in local currency from the year-ago quarter. The segment reported an adjusted operating loss of $10 million compared with a loss of $10.8 million incurred in the prior-year quarter.
Revenues from Other businesses (which include Asia, Europe and Latin America) climbed 11% year over year to $537 million. Volumes and pricing contributed an increase of 15 pp which was partially offset by a 2 pp decline from foreign exchange. Performance was also driven by 17% sales growth for the single channel online businesses and strong sales growth for the business in Mexico. The segment’s adjusted operating profit improved 7% to $26.7 million from $24.8 million recorded in the comparable period last year.
Financial Position
Grainger had cash and cash equivalents of $285 million at the end of third-quarter 2017 compared with $274 million at the end of 2016. Cash provided by operating activities increased to $721 million for the nine-month period ended Sep 30, 2017, compared with $689 million in the year-ago period.
As of third quarter end, Grainger’s long-term debt increased to $2,270 million compared with $1,841 million at the end of 2016. During the reported quarter, the company returned $196 million in cash to shareholders through $74 million in dividends and $124 million to buy back 719,000 shares.
Guidance
The company lowered 2017 guidance. It now expects 2017 sales growth of 1.5 to 2.5%, down from its previous projected range of 1-4%. Earnings per share are now expected to lie between $10.40 and $10.90, down from the prior guidance range of $10.00 to $11.30. However, the midpoint of earnings per share guidance remains unchanged at $10.65.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. There have been three revisions higher for the current quarter compared to three lower.
At this time, Grainger's stock has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated also a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth, and momentum investors.
Outlook
The stock a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.
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Grainger (GWW) Down 3.4% Since Earnings Report: Can It Rebound?
It has been about a month since the last earnings report for W.W. Grainger, Inc. (GWW - Free Report) . Shares have lost about 3.4% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.
Grainger Q3 Earnings, Revenues Beat on Higher Volumes
Grainger’s third-quarter 2017 adjusted earnings per share of $2.90 came in lower than the prior-year figure of $3.06 by 5%. However, earnings, beat the Zacks Consensus Estimate of $2.57 by 13%.
Including one-time items such as restructuring charges and branch gains, earnings came in at $2.79 per share in the reported quarter, down 9% from $3.06 in the year-ago quarter.
The company witnessed strong volumes in its U.S. business driven by strategic pricing initiatives as well as an improving demand environment. Grainger noted solid response, particularly from the mid-sized customers and also from digital marketing activities that began in mid-August. The single channel online businesses continued to deliver strong sales growth and improved profits. However, the Canadian business continues to be challenged.
Operational Update
Grainger reported revenues of $2,636 million, up 1.5% from the prior-year quarter figure of $2,596 million, driven by an increase of 8 percentage point (pp) from volume growth, partly offset by a decline of 4 pp in price and 1 percentage point from the divestiture of a specialty business in the United States in mid-July. Hurricane-related sales in the United States contributed 1 pp but were negated by a decline of 1 percentage point in seasonal sales. The figure marginally also beat the Zacks Consensus Estimate of $2,629 million.
There were 63 selling days in the reported quarter, one less than third-quarter 2016. The company continues to streamline portfolio with the divestiture of a non-core U.S. specialty business, which impacted sales in the quarter.
Cost of sales increased 4% year over year to $1,619 million. Gross profit decreased 2% to $1,017 million from $1,040 million recorded in the year-ago quarter. Gross margin contracted 140 basis points (bps) to 38.6%.
Grainger’s adjusted operating income in the quarter decreased 13% to $291 million from $332 million recorded in the prior-year quarter. Adjusted operating margin fell 180 bps to 11.0% in the quarter from 12.8% in the year-earlier quarter.
Segment Performance
Revenues for the U.S. segment edged down 0.6% year over year to $2,016 million, resulting from a 7 pp increase from volume partially offset by declines of 5 pp from price and 1 pp from the divestiture of a specialty business. Further, a benefit of 1 pp from intercompany sales and an increase 1 pp from hurricane-related sales were offset by declines of 1 pp from the Jul 4 holiday timing and 1 pp from seasonal sales. Adjusted operating income for the segment decreased 13% year over year to $303 million due to lower gross profit as a result of strategic pricing initiatives.
Revenues of $188 million from the Canada segment increased 5% in U.S. dollars and 2% in local currency from the year-ago quarter. The segment reported an adjusted operating loss of $10 million compared with a loss of $10.8 million incurred in the prior-year quarter.
Revenues from Other businesses (which include Asia, Europe and Latin America) climbed 11% year over year to $537 million. Volumes and pricing contributed an increase of 15 pp which was partially offset by a 2 pp decline from foreign exchange. Performance was also driven by 17% sales growth for the single channel online businesses and strong sales growth for the business in Mexico. The segment’s adjusted operating profit improved 7% to $26.7 million from $24.8 million recorded in the comparable period last year.
Financial Position
Grainger had cash and cash equivalents of $285 million at the end of third-quarter 2017 compared with $274 million at the end of 2016. Cash provided by operating activities increased to $721 million for the nine-month period ended Sep 30, 2017, compared with $689 million in the year-ago period.
As of third quarter end, Grainger’s long-term debt increased to $2,270 million compared with $1,841 million at the end of 2016. During the reported quarter, the company returned $196 million in cash to shareholders through $74 million in dividends and $124 million to buy back 719,000 shares.
Guidance
The company lowered 2017 guidance. It now expects 2017 sales growth of 1.5 to 2.5%, down from its previous projected range of 1-4%. Earnings per share are now expected to lie between $10.40 and $10.90, down from the prior guidance range of $10.00 to $11.30. However, the midpoint of earnings per share guidance remains unchanged at $10.65.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates flatlined during the past month. There have been three revisions higher for the current quarter compared to three lower.
W.W. Grainger, Inc. Price and Consensus
W.W. Grainger, Inc. Price and Consensus | W.W. Grainger, Inc. Quote
VGM Scores
At this time, Grainger's stock has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated also a grade of A on the value side, putting it in the top 20% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Based on our scores, the stock is equally suitable for value, growth, and momentum investors.
Outlook
The stock a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.