We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
W.W. Grainger (GWW) Down 8% Since Earnings Report: Can It Rebound?
Read MoreHide Full Article
A month has gone by since the last earnings report for W.W. Grainger, Inc. (GWW - Free Report) . Shares have lost about 8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is GWW due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Grainger Q4 Earnings, Revenues Beat on Higher Volumes
Grainger’s fourth-quarter 2017 adjusted earnings per share of $2.94 came in higher than the prior-year figure of $2.45 by 20%. Further, earnings beat the Zacks Consensus Estimate of $2.18 by a wide margin of 35%. The company witnessed strong volumes in its U.S. business, driven by strategic pricing initiatives as well as an improving demand environment. Grainger’s shares gained 12.71% in pre-market trading.
Including one-time items such as restructuring charges and other charges, earnings came in at $2.63 per share in the reported quarter, up 160% from $1.01 reported in the year-ago quarter.
Operational Update
Grainger reported revenues of $2,632 million, up 6.5% from the prior-year quarter figure of $2,471 million, driven by an increase of 11 percentage point (pp) from volume growth. This was partly offset by a decline of 3 pp in price and 1 pp from the divestiture of a specialty business in the United States in mid-July. The figure also beat the Zacks Consensus Estimate of $2,568 million. There were 63 selling days in the reported quarter, same as in fourth-quarter 2016.
Cost of sales increased 8.8% year over year to $1,611 million. Gross profit increased 3% to $1,021 million from $990 million recorded in the year-ago quarter. Gross margin contracted 130 basis points (bps) to 38.8%.
Grainger’s adjusted operating income in the quarter increased 4% to $285 million from $275 million recorded in the prior-year quarter. Adjusted operating margin fell 30 bps to 10.8% in the quarter from 11.1% in the year-earlier quarter.
Segment Performance
Revenues for the U.S. segment rose 5% year over year to $1,991 million, resulting from 11 pp increase from volume partially offset by declines of 5 pp from price and 1 pp from the divestiture of a specialty business. Adjusted operating income for the segment decreased 1% year over year to $299 million.
Revenues of $189 million from the Canada segment increased 4.5% in U.S. dollars. The increase consisted of 5 pp from favorable foreign exchange and 4 pp increase from price, partially negated by 4 pp decrease from volume. The segment reported an adjusted operating loss of $4.3 million compared with a loss of $10.7 million incurred in the prior-year quarter.
Revenues from Other businesses (which include Asia, Europe and Latin America) climbed 16% year over year to $559 million, primarily driven by MonotaRO in Japan and Zoro in the United States. The segment’s adjusted operating profit improved 51% to $25 million from $17 million recorded in the comparable period last year.
Financial Position
Grainger had cash and cash equivalents of $327 million at the end of 2017 compared with $274 million at the end of 2016. Cash provided by operating activities increased to $1.1 billion in fiscal 2017 compared with $1.0 billion in the prior year.
As of the end of 2017, the company’s long-term debt increased to $2.25 billion compared with $1.84 billion recorded at the end of 2016. During 2017, the company returned $910 million in cash to shareholders through $304 million in dividends and $605 million to buy back 3 million shares.
Fiscal 2017 Performance
Grainger’s adjusted earnings per share edged down 1% year over year to $11.46 in fiscal 2017. Earnings outpaced the Zacks Consensus Estimate of $10.71. Revenues came in at $10.4 billion, beating the Zacks Consensus Estimate of $10.36, and also improved 3% on a year-over-year basis.
Guidance
To reflect lower corporate taxes due to U.S. tax legislation and better-than-expected 2017 results, Grainger raised its earnings per share guidance for 2018. The company maintains sales growth guidance in the range of 3-7%.
Earnings per share for 2018 are now projected at $12.95-$14.15, up from the previous range of $10.60-$11.80. The increase in the guidance factors in a 50 cents contribution from the better-than-expected 2017 operating performance, a $2.15-benefit from a lower corporate tax rate under the U.S. tax legislation and 6 cents from incremental share buybacks funded by the benefits of the tax reform. However, these gains will be partially offset by 10 cents of lower benefits from clean energy investments and 26 cents in increased investment in the business, funded by the gains of the tax legislation.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. There have been four revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 24.6% due to these changes.
At this time, GWW has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was also allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. It comes with little surprise that GWW has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.
See More Zacks Research for These Tickers
Normally $25 each - click below to receive one report FREE:
Image: Bigstock
W.W. Grainger (GWW) Down 8% Since Earnings Report: Can It Rebound?
A month has gone by since the last earnings report for W.W. Grainger, Inc. (GWW - Free Report) . Shares have lost about 8% in that time frame, underperforming the market.
Will the recent negative trend continue leading up to its next earnings release, or is GWW due for a breakout? Before we dive into how investors and analysts have reacted of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Grainger Q4 Earnings, Revenues Beat on Higher Volumes
Grainger’s fourth-quarter 2017 adjusted earnings per share of $2.94 came in higher than the prior-year figure of $2.45 by 20%. Further, earnings beat the Zacks Consensus Estimate of $2.18 by a wide margin of 35%. The company witnessed strong volumes in its U.S. business, driven by strategic pricing initiatives as well as an improving demand environment. Grainger’s shares gained 12.71% in pre-market trading.
Including one-time items such as restructuring charges and other charges, earnings came in at $2.63 per share in the reported quarter, up 160% from $1.01 reported in the year-ago quarter.
Operational Update
Grainger reported revenues of $2,632 million, up 6.5% from the prior-year quarter figure of $2,471 million, driven by an increase of 11 percentage point (pp) from volume growth. This was partly offset by a decline of 3 pp in price and 1 pp from the divestiture of a specialty business in the United States in mid-July. The figure also beat the Zacks Consensus Estimate of $2,568 million. There were 63 selling days in the reported quarter, same as in fourth-quarter 2016.
Cost of sales increased 8.8% year over year to $1,611 million. Gross profit increased 3% to $1,021 million from $990 million recorded in the year-ago quarter. Gross margin contracted 130 basis points (bps) to 38.8%.
Grainger’s adjusted operating income in the quarter increased 4% to $285 million from $275 million recorded in the prior-year quarter. Adjusted operating margin fell 30 bps to 10.8% in the quarter from 11.1% in the year-earlier quarter.
Segment Performance
Revenues for the U.S. segment rose 5% year over year to $1,991 million, resulting from 11 pp increase from volume partially offset by declines of 5 pp from price and 1 pp from the divestiture of a specialty business. Adjusted operating income for the segment decreased 1% year over year to $299 million.
Revenues of $189 million from the Canada segment increased 4.5% in U.S. dollars. The increase consisted of 5 pp from favorable foreign exchange and 4 pp increase from price, partially negated by 4 pp decrease from volume. The segment reported an adjusted operating loss of $4.3 million compared with a loss of $10.7 million incurred in the prior-year quarter.
Revenues from Other businesses (which include Asia, Europe and Latin America) climbed 16% year over year to $559 million, primarily driven by MonotaRO in Japan and Zoro in the United States. The segment’s adjusted operating profit improved 51% to $25 million from $17 million recorded in the comparable period last year.
Financial Position
Grainger had cash and cash equivalents of $327 million at the end of 2017 compared with $274 million at the end of 2016. Cash provided by operating activities increased to $1.1 billion in fiscal 2017 compared with $1.0 billion in the prior year.
As of the end of 2017, the company’s long-term debt increased to $2.25 billion compared with $1.84 billion recorded at the end of 2016. During 2017, the company returned $910 million in cash to shareholders through $304 million in dividends and $605 million to buy back 3 million shares.
Fiscal 2017 Performance
Grainger’s adjusted earnings per share edged down 1% year over year to $11.46 in fiscal 2017. Earnings outpaced the Zacks Consensus Estimate of $10.71. Revenues came in at $10.4 billion, beating the Zacks Consensus Estimate of $10.36, and also improved 3% on a year-over-year basis.
Guidance
To reflect lower corporate taxes due to U.S. tax legislation and better-than-expected 2017 results, Grainger raised its earnings per share guidance for 2018. The company maintains sales growth guidance in the range of 3-7%.
Earnings per share for 2018 are now projected at $12.95-$14.15, up from the previous range of $10.60-$11.80. The increase in the guidance factors in a 50 cents contribution from the better-than-expected 2017 operating performance, a $2.15-benefit from a lower corporate tax rate under the U.S. tax legislation and 6 cents from incremental share buybacks funded by the benefits of the tax reform. However, these gains will be partially offset by 10 cents of lower benefits from clean energy investments and 26 cents in increased investment in the business, funded by the gains of the tax legislation.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month. There have been four revisions higher for the current quarter. In the past month, the consensus estimate has shifted by 24.6% due to these changes.
W.W. Grainger, Inc. Price and Consensus
W.W. Grainger, Inc. Price and Consensus | W.W. Grainger, Inc. Quote
VGM Scores
At this time, GWW has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was also allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.
Zacks' style scores indicate that the company's stock is suitable for growth and momentum investors.
Outlook
Estimates have been trending upward for the stock and the magnitude of these revisions also looks promising. It comes with little surprise that GWW has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.