W.W. Grainger (GWW) delivered a 10% year-over-year sales growth in August 2012. However, the reported growth trailed the levels attained in July (11%) and May (13%) this year.
Acquisitions added 4 percentage points to the growth in August. Organic sales surged 7% with higher volume and pricing contributing 4 percentage points each. However, the improvement was partly offset by a 1 percentage point year-over-year decrease due to lower sales of hurricane-related products this year.
Geographically, daily sales in the U.S. soared 4%. By end markets, Heavy and Light Manufacturing revenues increased in the high-single digits while Retail went up in the low single-digits. Commercial and Government sales increased in the mid single-digits. However, Natural Resources and Reseller went down by low-single digits. In addition, Contractor declined by mid-single digits.
Canada saw an increase of 12%, driven by an 11 percentage point rise in volume and 2 percentage point escalation in price, partially offset by unfavorable foreign exchange impact of 1%. In local currency, sales increased 13%, driven by growth in the Commercial, Utilities and Retail end markets.
Daily sales at the company's Other businesses, which include operations in Europe, Japan, Mexico, India, Puerto Rico, China, Dominican Republic and Panama, increased 85%, primarily due to sales from acquired businesses in Europe and Brazil. Excluding acquisitions, sales went up 30%, driven primarily by strong growth in Japan and Mexico.
August 2012 had 23 selling days, same as last year. Looking forward, September will have 19 selling days compared with 21 last year and the third quarter of fiscal 2012 will have 63 selling days, one day less than the prior-year quarter.
Grainger remains focused on expanding its product offerings and growing the share of its private label products. It also aims at expansion programs for strengthening its businesses in each of its operating regions, mainly Asia and Latin America.
However, the sales growth rate has slowed down sequentially, raising our concern. In addition, Grainger’s accelerated investments in product line expansion, international expansion and eCommerce may weigh on its margins moving ahead.
Grainger retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.
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