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Grainger (GWW) to Divest Distribution Business in China

Zacks Equity Research
·4 min read

W.W. Grainger, Inc. GWW has entered into an agreement to divest its China-based distribution business, Grainger China LLC (Grainger China), to an undisclosed purchaser of the Grainger China management team and Sinovation Ventures, a venture capital firm in China. The deal is expected to close later this year.

The divestiture will help Grainger concentrate on generating profitable growth in key business areas and geographies. In fact, the company will continue to maintain its Global Sourcing operations in China. Notably, the Global Sourcing solutions provide the company with private label product categories, including cleaning, safety, motors, electrical and tools.

Grainger remains focused on providing value to customers, executing strategies and delivering growth through high-touch and endless assortment offerings. The company expects to bolster growth with an endless assortment model on the strength of MonotaRO and the incremental investments in the Zoro businesses.

Recently, Grainger entered into an agreement to divest a leading European distributor of fasteners, Fabory Group (Fabory), and related maintenance, repair and operating (MRO) products to Torqx Capital Partners.

Grainger is a leading, broad line, business-to-business distributor of MRO products and services. In first-quarter 2020, the company outgrew the U.S. MRO market by around 700 bps. Even after excluding the contribution of the pandemic-related sales, the outgrowth was within the company’s targeted range of 300-400-bp annual outgrowth, highlighting the continued traction of its growth initiatives. So far, the company accomplished the goal of remerchandising a record $1.2 billion of products in the United States and is on track to complete another $1.6 billion in the current year.

The company is focused on improving the end-to-end customer experience by making investments in its e-commerce and digital capabilities, and executing improvement initiatives within its supply chain. Grainger has witnessed a surge in COVID-19-related product sales owing to higher customer demand. It expects increased sales of safety and cleaning products to large healthcare, government and critical manufacturing customers in the near term.

However, the coronavirus pandemic might cause disruptions to Grainger’s businesses and operations as well as the operations of its customers and suppliers. Further, the pandemic has led to a demand shift toward lower-margin products. Weakness in heavy manufacturing will keep hurting Grainger’s top line in the near run.

Price Performance

The stock has gained 27% over the past three months compared with the industry’s growth of 33.8%.

Zacks Rank & Stocks to Consider

Grainger currently carries a Zacks Rank #3 (Hold)

Some better-ranked stocks in the Industrial Products sector are Silgan Holdings Inc. SLGN, Broadwind Energy, Inc. BWEN and Axon Enterprise, Inc. AAXN. While Silgan sports a Zacks Rank #1 (Strong Buy), Broadwind Energy and Axon carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Silgan has a projected earnings growth rate of 11.3% for 2020. The company’s shares have gained 15% in the past three months.

Broadwind Energy has an expected earnings growth rate of 174% for the current year. The stock has appreciated 6% over the past three months.

Axon has an estimated earnings growth rate of 14.4% for the ongoing year. The company’s shares have rallied 21.3% in the past three months.

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