Grainger's July Sales Rise 4%

Zacks

W.W. Grainger, Inc. (GWW) reported a 4% year over year increase in sales in Jul 2013. The gain has decreased from the prior-month’s increase of 5% and is also below rise of 11% in Jul 2012.

Jul 2013 had 22 selling days, compared with 21 last year. The gain in July sales stemmed from higher volumes (5%), prices (1%) and acquisitions (1%), partly offset by a 1% decline from foreign exchange, lower sales of seasonal products (1%) and decline from the timing of July 4 holiday in the U.S. (1%). This year, July 4 fell on a Thursday which contributed to lower sales volume the next day.

Geographically, daily sales in the U.S. rose 6%, helped by higher volume (6%), favorable pricing (1%) and acquisitions (1%), partly offset by decline from lower sales of seasonal products (1%) and timing of the July 4th holiday (1%).

Light manufacturing sales rose in the high single-digits, followed by heavy manufacturing, Government and commercial in the mid single-digits. Contractors and natural resources were up in the low single-digits. Retail sales remained flat while reseller was down in the mid single-digits.

Daily sales in Canada declined 1% due to an unfavorable currency impact of 3%, partly offset by 2% rise in volume. Volume was negatively affected by weak global demand for Canadian exports, lower commodity prices and weak global demand in the mining sector. Volume growth was also impacted by lower volume in the construction and heavy manufacturing segments.

Daily sales at Grainger’s other businesses, which include operations in Asia, Europe and Latin America, decreased 2% as higher volume and favorable pricing (3%) was offset by unfavorable foreign currency translation (5%).

According to Grainger, daily sales gain in August is trending in line with what was achieved in July.

Grainger, which belongs to the industrial services industry along with ScanSource, Inc. (SCSC), HD Supply Holdings, Inc. (HDS) and MSC Industrial Direct Co. Inc. (MSM), reported second-quarter 2013 earnings of $3.03 per share, up 15% from $2.63 a year ago and ahead of the Zacks Consensus Estimate of $2.96. Revenues in the quarter were $2,381 million, up 6% from $2,249 million in the year-ago period, but below the Zacks Consensus Estimate of $2,392 million.

Grainger increased its earnings per share guidance to the range of $11.40–$12.00 per share for fiscal 2013, up from the prior guidance of $11.30–$12.00 per share. However, Grainger tweaked its sales growth guidance to a new range of 5% to 8% against the prior guidance of 5% to 9%.

Grainger expects foreign exchange to negatively impact the full-year sales by 1%. The company expects 4% to 10% daily sales growth for the remainder of the year. Grainger projects gross margin expansion of 30 to 40 basis points for 2013. The company is not planning any interim price increase for the remainder of the year owing to the low-inflation environment for commodities. Operating margin expansion is projected at 35 to 65 basis points for the full year.

Grainger will continue to benefit from its focus on expanding its sales force, product offerings and strengthening its businesses across all operating regions, mainly in Asia and Latin America, as well as continued investment in e-commerce – its most profitable channel.

However, the recent slowdown in sales is a concern. Grainger has an incremental $150 million of growth spending in the pipeline for 2013. Even though these initiatives will lead to additional share gains in the future, it will weigh on margins in the short term.

Lake Forest, Ill.-based Grainger is a leading North American distributor of material handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, forestry and agriculture equipment, building and home inspection supplies, vehicle and fleet components, and various aftermarket components.

Grainger currently retains a short-term Zacks Rank #3 (Hold).
 

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