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Grainger (GWW) Q2 Earnings & Revenues Lag Estimates, Up Y/Y

Zacks Equity Research

W.W. Grainger, Inc. GWW posted second-quarter 2019 adjusted earnings per share (EPS) of $4.64, up 6% year over year. Further, earnings missed the Zacks Consensus Estimate of $4.65 by a whisker. Growth in operating earnings and lower average shares outstanding drove Grainger’s quarterly performance.

Including one-time items, such as restructuring and other charges, earnings came in at $4.67 in the reported quarter. The figure improved 12% from $4.16 recorded in the year-ago quarter.

Grainger’s revenues inched up 1% to $2,893 million from the prior-year quarter’s $2,861 million. This upside was driven by an increase of 1.5 percentage point (pp) in volume and 0.5 pp increase in price. However, revenues missed the Zacks Consensus Estimate of $2,988 million.

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

Cost of sales increased 1.3% year over year to $1,772 million. Gross profit inched up to $1,121 million from $1,112 million recorded in the year-earlier quarter. Gross margin shrunk  to 38.7% in the quarter from 38.9% reported in the year-ago quarter.

Grainger’s adjusted operating income in the April-June quarter increased 5% to $377 million from $359 million witnessed in the prior-year quarter. Adjusted operating margin expanded 50 bps year-over-year to 13% in the quarter.

Financial Position

The company had cash and cash equivalents of $315 million at the end of the second quarter compared with $313 million at the end of the prior-year quarter. Cash provided by operating activities increased to $323 million for the quarter from the year-ago quarter’s $248 million.

Long-term debt was $2,080 million as of Jun 30, 2019, compared with $2,090 million as of Dec 31, 2018. The company returned $352 million to shareholders through $87 million in dividends and $265 million to buy back around 970,000 shares in the reported quarter.

Outlook

Grainger has maintained its guidance for full-year 2019. Operating margin is forecast in the band of 12.2-13.0%. The company expects EPS of $17.10-$18.70. Gross margin is estimated between 38.1% and 38.7%. Nevertheless, the company lowered its revenue guidance due to a softer demand environment, and weaker performance at AGI and Cromwell.  As a result, revenue growth is projected between 2% and 5%, as against the prior estimate of 4-8.5%.
 
Price Performance

Over the past year, Grainger’s shares have declined 14% compared with the  industry’s loss of 13.1%.



Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are Roper Technologies, Inc. ROP, John Bean Technologies Corp. JBT and CECO Environmental Corp. CECE, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here

Roper Technologies has an estimated earnings growth rate of 9.8% for the ongoing year. The company’s shares have gained 30.3% in the past year.

John Bean Technologies has an expected earnings growth rate of 5.9% for the current year. The stock has appreciated 33.1% in a year’s time.

CECO Environmental has an impressive projected earnings growth rate of 84.8% for 2019. The company’s shares have rallied 29.6% over the past year.

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