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What's in the Offing for Grainger (GWW) in Q1 Earnings?

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W.W. Grainger, Inc. GWW is scheduled to report first-quarter 2018 results before the market opens on Apr 19.

In the last quarter, Grainger posted earnings of $2.94 per share, beating the Zacks Consensus Estimate by a wide margin of around 35%. The company’s earnings also surpassed estimates in three out of the trailing four quarters, recording an average positive earnings surprise of roughly 12%.

Let’s see how things are shaping up prior to this announcement.

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

 

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

Key Factors to Consider

In the first quarter, Grainger is expected to benefit from pricing initiatives, digital marketing strategies and efforts to bring its Canadian business back to profitability. Further, the first-quarter margins remain typically higher due to price increase cycles. However, elevated expenses and fluctuation in oil and gas prices are likely to affect results.

Notably, the company is in the middle of a substantial transformation of the Canada business. Its focus on improving the business’ cost structure through branch reductions, improving service to customers and the creation of North American centers of excellence will drive results. Per the Zacks Consensus Estimates, net sales in the Canada segment are likely to rise around 2% to $190 million in the first quarter. Moreover, the segment will likely report an adjusted operating loss of $15 million, narrower than the operating loss of $15.6 million witnessed in first-quarter 2017.

Further, the Zacks Consensus Estimate for Grainger’s quarterly sales in the Unites States is $2.07 billion, reflecting around 5.9% year over year rise.The Zacks Consensus Estimate for adjusted operating income of the segment is pegged at $307 million in the first quarter compared to $306 million reported in the prior-year quarter. Focus on pricing strategies, volume growth and an improving demand environment remain catalysts for the segment’s performance in the quarter to be reported.

Moreover, the Zacks Consensus Estimate for Grainger’s earnings per share is pegged at $3.39 for the first quarter, reflecting year-over-year growth of 17.7%.The Zacks Consensus Estimate for total sales of $2.71 billion also indicates nearly 6.6% increase from the prior-year quarter.

In addition, Grainger’s price performance has been impressive over the past year. Shares of the company have appreciated around 27% outperforming growth of 16% recorded by the industry.



Earnings Whispers

Our proven model does not conclusively show that Grainger is likely to beat on earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. This is not the case here as you will see below:  

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate of $3.33 and the Zacks Consensus Estimate of $3.39, is -1.73%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Grainger currently carries a Zacks Rank #2. While this increases the predictive power of ESP, we also need to have a positive ESP to be confident about an earnings surprise.  

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

TPI Composites, Inc. TPIC, with an Earnings ESP of +120.00% and a Zacks Rank #3. The stock has gained 11.4% in a year’s time. You can see the complete list of today’s Zacks #1 Rank stocks here.

Caterpillar Inc. CAT, with an Earnings ESP of +3.41% and a Zacks Rank #3. Its shares have rallied 61.6% in the past year.

Terex Corporation TEX, with an Earnings ESP of +1.96% and a Zacks Rank #3. The company’s shares have been up 23% during the same time frame.

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