On Feb 21, 2014, we issued an updated research report on W.W. Grainger Inc. (GWW). This leading broad line supplier of maintenance, repair and operating (MRO) products reported fourth-quarter earnings per share of $2.59, up 7% year over year, on Jan 24. Earnings were within the company’s guided range of $2.53 to $2.73 but were short of the Zacks Consensus Estimate of $2.63.
Citing a weaker Canadian dollar in recent months and the divestiture of a number of direct marketing Specialty Brands, Grainger narrowed its earnings-per-share guidance to the range of $12.10–$12.85 for fiscal 2014, from the prior guidance of $12.25–$13.00 per share. Grainger lowered its sales growth guidance to a new range of 5% to 9%, against the prior guidance of 6% to 10%.
International operations are dragging down the company’s performance. Management is currently evaluating the operating performance and strategic direction of some of the international businesses that are not meeting expectations.
Nevertheless, Grainger remains focused on expanding its product offerings, sales force as well as the share of its private label products which will lead to long-term growth. In the United States, Grainger added 180 new sales representatives and over 300,000 new products in 2013, bringing the total number of online products to more than 1.2 million. In Canada, Grainger announced the addition of 200,000 products to its online offering.
Moreover, Grainger expects incremental investment spending to total approximately $130 million in 2014, marking the fourth consecutive year of growth spending on initiatives such as new sales representatives and investments in IT infrastructure, new branches and distribution centers and e-commerce.
Grainger continues to invest in e-commerce and expects to increase the number of customers utilizing this channel and its percentage of overall sales. Grainger crossed the $3 billion mark in e-commerce sales in 2013, representing 33% of total company sales. Grainger’s target is to increase it to 50% by 2015. E-commerce is one of Grainger’s most efficient channels as it is reportedly growing twice as fast as other channels and is deemed to be Grainger’s most profitable channel.
The trimmed guidance led to negative estimate revisions for fiscal 2014 for Grainger. All the 14 estimates for 2014 have been revised downward over the past 30 days. This led to a 3% drop in the Zacks Consensus Estimate for fiscal 2014, which now stands at $12.62 per share.
Grainger currently carries a Zacks Rank #3 (Hold).
Key Picks from the Sector
Some stocks that are worth considering within this sector include Graco Inc. (GGG), Altra Industrial Motion Corp. (AIMC) and ScanSource, Inc. (SCSC), all of which hold a Zacks Rank #2 (Buy).