At its analyst meeting, W.W. Grainger, Inc. GWW provided an outlook for sales and earnings in 2016 and 2017. Further, it divulged plans that will improve its financial performance and strengthen returns to shareholders. Additionally, the company reported its Oct 2016 sales which remained flat with the prior-year level.
Grainger reported flat daily sales in Oct 2016 compared to the prior year driven by a 1 percentage point increase in volume, offset by a 1 percent decline in price. The month had 21 selling days, one less than the previous year. Daily sales in the US dipped 1% due to a 1 percentage point decline in volume and a 1 percentage point decline in price, partially negated by a 1 percentage point contribution from intercompany sales to Zoro. Sales to Government and Light Manufacturing were up in the mid single digits while sales to retail was up in the low single digits. However, Commercial was down in the low single digits, Heavy Manufacturing was down in the mid single digits, Contractors was down in the high-single digits, while Resellers and Natural Resources were down in the low double digits.
In Canada, sales plunged 15% in the U.S. currency and 13% in local currency affected by a 9 percentage point decline in volume and a 4 percentage point decline in price. The price decline was primarily owing to the effect of delaying price increases until customer service stabilizes. Daily sales to all customer end markets were down.
On the contrary, sales in other businesses increased 15% driven by positive volume and price. Continued strong performance from MonotaRO in Japan and Zoro in the U.S. was primarily responsible for the growth, partially neutralized by sales declines at Cromwell and Fabory.
Fourth-quarter 2016 will have 63 selling days, one fewer than fourth-quarter 2015.
Guidance for 2016 & 2017
For fourth-quarter 2016, Grainger is projecting sales growth of -1% to 3% while earnings per share will range between $2.27 and $2.57. For 2016, the company maintained its sales growth forecast of 1.5% to 2.5% and its earnings per share guidance of $11.40 to $11.70. For 2017, sales growth is projected at 2% to 6% and earnings per share between $11.30 and $12.40.
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Moreover, Grainger provided its long-term operating margin targets and expects an annual improvement of 25 to 50 basis points from 2017 to 2021. This is expected to stem from organic sales growth in the mid to high single digits and continued strong cost productivity.
Consequently, Grainger anticipates operating margins, excluding special items that the company believes are not indicative of ongoing operations, to go up from the range of 11.7% to 12.2% in 2017 to the range of 13% to 14% by 2021.
The company expects higher sales and operating margins, lower capital spending and increased productivity across its existing asset base to lead to an improvement in its Return on Invested Capital from a range of 24% to 26% in 2017 to 31% to 33% in 2021.
Further, it stated that it will continue to grow its industry-leading customer experience by making pricing simpler and more applicable to drive faster growth as well as stronger share gain in its domestic business for a broader set of customers. These actions, along with cost cutting and a turnaround in its Canada business, are likely to improve results.
Zacks Rank & Key Picks
Grainger currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the same sector are HD Supply Holdings, Inc. HDS, Hudson Technologies Inc. HDSN and Middleby Corp. MIDD. HD Supply Holdings delivered an average positive earnings surprise of 4.79% in the last four quarters. The company carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hudson Technologies also carries Zacks Rank #2 and has delivered an average positive earnings surprise of 20.71% in the past four quarters. Middleby, another Zacks Rank #2 stock, has an average positive earnings surprise of 1.60% in the past four quarters.
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