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Grainger (GWW) Beats on Q2 Earnings, Maintains FY17 View

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W.W. Grainger, Inc.’s (GWW - Free Report) second-quarter 2017 adjusted earnings per share of $2.74 came in 5% lower than the prior-year figure of $2.89. Earnings, however, beat the Zacks Consensus Estimate of $2.62.

Including one-time items, earnings came in at $1.67 per share in the reported quarter, down around 40% from $2.79 recorded in the year-ago quarter.

Operational Update

Grainger reported revenues of $2,615 million, up 2% from the prior-year quarter figure of $2,564 million, driven by a 7 percentage point (pp) increase from volume growth, partly offset by a 3 pp decline in price, 1 pp from foreign exchange and 1 pp from the timing of the Easter holiday. However, the figure marginally fell short of the Zacks Consensus Estimate of $2,622 million. There were 64 selling days in the reported quarter, same as second-quarter 2016.

W.W. Grainger, Inc. Price, Consensus and EPS Surprise

 

W.W. Grainger, Inc. Price, Consensus and EPS Surprise | W.W. Grainger, Inc. Quote

Cost of sales increased 3.4% year over year to $1,575 million. Gross profit decreased slightly to $1,039 million from $1,040 million recorded in the year-ago quarter. Gross margin contracted 80 basis points to 39.8%.

Grainger’s adjusted operating income in the quarter decreased 9% to $294 million from $323 million recorded in the prior-year quarter. Operating margin fell to 11.2% in the quarter from 12.6% in the year-earlier quarter.

Segment Performance

Revenues for the U.S. segment inched up 1% year over year to $1,999 million, resulting from a 5 pp increase from volume and 1 pp from intercompany sales, partly offset by a 4 pp decline in price and a 1 pp decline from the timing of the Easter holiday. Adjusted operating income for the segment decreased 8% year over year to $312.4 million.

Revenues of $189 million from the Canada segment declined 3% in U.S. dollars and 2% in local currency from the year-ago quarter. The segment reported an adjusted operating loss of $7.2 million compared to a loss of $9.8 million incurred in the prior-year quarter.

Revenues from Other businesses (which include Asia, Europe and Latin America) climbed 11% year over year to $526.6 million. The segment’s adjusted operating profit declined 8% to $27.3 million from $29.7 million recorded in the comparable period last year.

Financial Position

Grainger had cash and cash equivalents of $275 million at the end of second-quarter 2017 compared with $274 million at the end of 2016. Cash provided by operating activities increased to $372 million for the six-month period ended Jun 30, 2017, compared with $343 million in the year-ago period.

As of quarter end, Grainger’s long-term debt increased to $2,268 million compared with $1,841 million at the end of 2016. During the second quarter, the company returned $234 million in cash to shareholders through $80 million in dividends and $154 million to buy back 780,000 shares.

Guidance

Grainger reiterated its 2017 guidance. The company expects adjusted earnings per share for 2017 to be in the range of $10.00– $11.30. It anticipates its sales to grow 1–4% for the full year.

Share Price Performance

Over the last one year, Grainger underperformed the Zacks classified Industrial Services sub-industry with respect to price performance. The stock lost around 19.61%, while the industry saw a decline of 15.76% over the same time frame.



Zacks Rank

Grainger currently carries a Zacks Rank #4 (Sell).

Some better-ranked companies in the same sector are AGCO Corp. (AGCO - Free Report) , Apogee Enterprises, Inc. (APOG - Free Report) and Cimpress N.V. (CMPR - Free Report) , all three sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has expected long-term growth rate of 12.41%.

Apogee has expected long-term growth rate of 12.50%.

Cimpress has expected long-term growth rate of 17.50%.

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