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Grainger (GWW) Misses on Q1 Earnings, Suspends '20 Outlook

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Zacks Equity Research
·4 min read
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W.W. Grainger, Inc. GWW reported first-quarter 2020 adjusted earnings per share (EPS) of $4.24, which missed the Zacks Consensus Estimate of $4.42, resulting in a negative surprise of 4%. The bottom line also declined 6% year over year primarily on account of lower operating earnings that were partially offset by lower average shares outstanding in the current year period.

Including one-time items, such as restructuring and other charges, earnings came in at $3.19 in the reported quarter. The figure plunged 29% from the year-ago quarter’s $4.48.

Grainger’s revenues improved 7% to $3 billion from the prior-year quarter figure of $2.8 billion. Daily sales for the quarter increased 5.5%. Volumes were up 7% while price and mix headwinds were at around 2%. Foreign exchange had an unfavorable impact of 0.2%. Further, the top line surpassed the Zacks Consensus Estimate of $2.9 billion.

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

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

W.W. Grainger, Inc. price-consensus-eps-surprise-chart | W.W. Grainger, Inc. Quote

Operational Update

Adjusted cost of sales increased 10% year over year to $1,880 million. Gross profit was up 2% year over year to $1,121 million. Gross margin contracted to 37.4% in the quarter from 39.2% in the year-ago quarter. Higher growth in the lower margin carrying endless assortment businesses, headwinds in the U.S. segment related to customer and product mix stemming from the COVID-19 pandemic primarily led to the drop in gross margins.

Grainger’s adjusted operating income in the first quarter declined 6% to $343 million from the $365 million in the prior-year quarter. Adjusted operating margin contracted 160 bps year over year to 11.4% in the quarter, mainly due to lower gross margins.

Financial Position

The company had cash and cash equivalents of $1,492 million at the end of first-quarter 2020, significantly up from $360 million at 2019 end. Cash provided by operating activities increased to $244 million in the first quarter from the year-ago quarter figure of $127 million, driven by favorable working capital in first-quarter 2020.

Long-term debt was $3,303 million as of Mar 31, 2020, compared with $1,914 million as of Dec 31, 2019. The company returned $178 million to shareholders through $78 million in dividends and $100 million in share repurchases. Grainger announced that it is pausing share repurchases in the wake of the coronavirus pandemic.

Suspends 2020 Guidance

The company has suspended guidance for 2020 citing the uncertainty stemming from the coronavirus pandemic and its impact on the overall economy.

Price Performance

Over the past year, Grainger’s shares have fallen 5.8%, compared with the industry’s decline of 26.5%.

Zacks Rank and Stocks to Consider

Grainger currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the Industrial Products sector are Sharps Compliance Corp. SMED, Lakeland Industries, Inc. LAKE and Silgan Holdings Inc. SLGN. While Sharps Compliance sports a Zacks Rank #1 (Strong Buy), Lakeland Industries and Silgan Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Sharps Compliance has an estimated earnings growth rate of 800% for 2020. In a year, the company’s shares have soared 105%.

Lakeland Industries has an estimated earnings growth rate of 73% for 2020. In a year, the company’s shares have appreciated 29%.

Silgan Holdings has an estimated earnings growth rate of 7% for 2020. In a year, the company’s shares have gained 9%.

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