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Why Is W.W. Grainger (GWW) Down 0.8% Since Last Earnings Report?

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A month has gone by since the last earnings report for W.W. Grainger (GWW - Free Report) . Shares have lost about 0.8% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is W.W. Grainger 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 Miss Estimates, Up Y/Y

Grainger posted third-quarter 2019 adjusted earnings per share (EPS) of $4.26, up 2% year over year. Earnings, however, missed the Zacks Consensus Estimate of $4.44, resulting in a negative surprise of 4%. Growth in operating earnings and lower average shares outstanding drove Grainger’s quarterly performance.

Including one-time items, such as restructuring and other charges, earnings came in at $4.25 in the reported quarter. The figure soared 134% from the year-ago quarter’s $1.82.

Grainger’s revenues jumped 4% to $2,947 million from the prior-year quarter’s $2,831 million. This upside was driven by an increase of 2.5 percentage point (pp) in volume. However, the revenue figure missed the Zacks Consensus Estimate of $2,950 million.

Operational Update

Cost of sales increased 5.5% year over year to $1,848 million. Gross profit was up 1.8% year over year to $1,099 million. Gross margin shrunk to 37.3% in the quarter from the 38.1% reported in the year-ago quarter.

Grainger’s adjusted operating income in the July-September quarter increased 2% to $339 million from the $332 million witnessed in the prior-year quarter. Adjusted operating margin contracted 20 bps year on year to 11.5% in the quarter.

Financial Position

The company had cash and cash equivalents of $286 million at the end of the third quarter, down from $517 million at the prior-year quarter end. Cash provided by operating activities decreased to $320 million for the quarter from the year-ago quarter’s $348 million.

Long-term debt was $1,918 million as of Sep 30, 2019, compared with $2,090 million as of Dec 31, 2018. The company returned $279 million to shareholders through $79 million in dividends and $200 million to buy back around 725,000 shares in the reported quarter.

Outlook

Grainger has maintained its guidance for full-year 2019. Operating margin is forecasted in the band of 12.2-13.0%. The company expects EPS of $17.10-$18.70. Gross margin is estimated between 38.1% and 38.7%, and revenue growth is projected between 2% and 5%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, W.W. Grainger has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, W.W. Grainger has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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