W.W. Grainger (GWW) delivered year-over-year sales growth of 13% in May 2012. This represents an improvement from a 12% growth achieved in April, but trails the levels attained in March (15%), February (18%) and January (17%) this year.
Acquisitions added 5 percentage points to growth. Organic sales increased 9% with higher volume and pricing contributing 6 and 3 percentage points, respectively. However, the growth was partially offset by a 1 percentage point dip from unfavorable foreign exchange.
Geographically, daily sales in the U.S. increased 8%. Per end markets, Natural Resources was up in the mid-teens. Heavy Manufacturing increased in the low double-digits while Light Manufacturing, Retail and Commercial went up in the high single-digits. Reseller and Government increased in the mid single-digits. Contractor, however, declined in the low single-digits.
Canada saw an increase of 9%, driven by a 12 percentage point increase in volume and 2 percentage point rise in price, partially offset by negative foreign exchange impact (of 5%). In local currency, sales increased 14%, 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 86%, primarily due to incremental sales from Fabory. Excluding acquisitions, sales increased 22%, driven primarily by strong growth in Japan and Columbia.
May 2012 had 22 selling days, one more than May 2011. Looking forward, June will have 21 selling days compared with 22 last year; the second quarter of fiscal 2012 will have 64 selling days, same as the prior-year quarter.
Grainger remains focused on expanding its product offerings and growing the share of its private label products. The company’s recent catalog, issued in February 2012, offers about 413,000 facilities maintenance and other products, up from 350,000 products listed in the February 2011 issue. It has a long-term vision to expand the product count to 500,000 by 2015.
Grainger also focuses on expansion programs for strengthening its businesses in each of its operating regions, mainly in Asia and Latin America. Revenues from Other Businesses jumped 104% year-over-year in first-quarter 2012, reflecting strong growth in Japan and Mexico and the Fabory acquisition.
However, margins are expected to remain under pressure due to Grainger’s accelerated investments in product line expansion, sales force expansion, eCommerce, inventory services, distribution centers and international expansion.
Grainger competes with companies like Applied Industrial Technologies, Inc. (AIT) and WESCO International Inc. (WCC). The stock retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on Grainger.Read the Full Research Report on GWW
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