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Grainger (GWW) to Divest European MRO Product Supplier Fabory

Zacks Equity Research

W.W. Grainger, Inc. GWW has entered into an agreement to divest Fabory Group (Fabory) to Torqx Capital Partners, a Dutch private equity company. The transaction is likely to close in the upcoming months.

Fabory is a leading European distributor of fasteners and related maintenance, repair and operating (MRO) products. In 2011, Grainger acquired the company to expand its presence in the MRO market. Notably, Grainger will continue to offer broad line MRO products to Western Europe customers through Cromwell and Zoro.

Grainger remains focused on providing value to customers, executing strategy and delivering growth through endless assortment offerings. Grainger’s single-channel businesses primarily, MonotaRO and Zoro, continue to stoke growth. The company expects to bolster growth with endless assortment model on the strength of the MonotaRO and the incremental investments in Zoro.

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 2020. In first-quarter 2020, Grainger 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 bps annual outgrowth, highlighting the continued traction of its growth initiatives. Grainger will continue its efforts to strengthen relationships with both large- and mid-sized customers to improve sales-force effectiveness. It continues to re-engage lapsed customers and acquire new ones.

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 of COVID-19 pandemic-related product sales owing to higher customer demand. It expects increased levels of safety and cleaning product sales 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 brought in 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 6.9% over the three months, as against the industry’s loss of 0.4%.


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 three months’ time.

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