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Grainger Nov Sales Rise 5%

Zacks Equity Research

W.W. Grainger, Inc. (GWW) reported a 5% year over year increase in sales in Nov 2013. However, shares of Grainger dropped as much as around 3% following the news release as the gain in Nov sales was less than 7% rise recorded in the previous month. It was also below an 8% rise recorded in Nov 2012.

Nov 2013 had 20 selling days compared with 21 last year. The gain in November sales stemmed from positive contribution from acquisitions (4 percentage points) which offset a 2 percentage points decline from foreign exchange. On an organic basis, sales improved 3% on volume growth (6 percentage points), partially offset by a decline of 2 percentage points in sales of hurricane-related products in Nov 2012 and a 1 percentage point drop in price.

Geographically, daily sales in the U.S. rose 7%, aided by higher volume (6 percentage points) and acquisitions (5 percentage points), partly offset by lower sales of seasonal products (3 percentage points) and drop in price (1 percentage point).

Light manufacturing sales rose in the high single-digits, followed by mid single-digits gains in heavy manufacturing, retail and commercial. Natural resources were up in the low single-digits. Contractor was down in the high single-digits. It was followed by reseller which was down in the mid single-digits and government was down in the low single-digits.

Sales to the Government sector increased overall as daily sales to state and local governments, which account for more than 75% of government sales, rose in the low single-digit. On the other hand, daily sales for the federal government business declined in low double-digits from the prior year.

Daily sales in Canada declined 2% in U.S. currency, but increased 3% in local currency due to higher volume. Growth was driven by strength in oil & gas and light manufacturing end markets, partly offset by one less selling day in Canada than in the U.S. due to the timing of Remembrance Day in 2013.

Daily sales at Grainger’s other businesses, which include operations in Asia, Europe and Latin America, climbed 5% as higher volume and favorable pricing (13 percentage points) were offset by the negative foreign currency translation effect (8 percentage points).

According to Grainger, after normalizing for acquisitions in 2013 and the hurricane in 2012, daily sales growth in the U.S. in December is trending below the November level. Grainger intends to divest three direct marketing brands within Specialty Brands in 2013 which will add an estimated $90 million in revenues for the full year.

Grainger, in its third-quarter earnings call, narrowed its earnings per share guidance to the range of $11.45–$11.65 for 2013 from the previous expectations of $11.40–$12.00. Grainger revised its sales growth guidance to a new range of 5% to 6% against the prior guidance of 5% to 8%.

Grainger is expected to benefit in the long term from its incessant focus on expanding its sales force, product offerings and strengthening its businesses across all operating regions, mainly in Asia and Latin America, as well as continued investment in e-commerce -- its most profitable channel.

Furthermore, Grainger’s sound balance sheet, low debt level and cash flow allow the company to invest in growth opportunities, raise dividends and reinvest capital through share repurchases.

On the flipside, Grainger's overall sales growth is on a downward trend. Pricing and unfavorable foreign exchange were headwinds in the third quarter and are likely to remain so in the final quarter of 2013.

Lake Forest, Ill.-based Grainger is a leading North American distributor of material handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, forestry and agriculture equipment, building and home inspection supplies, vehicle and fleet components, and various aftermarket components.

Grainger currently retains a short-term Zacks Rank #4 (Sell).

Better ranked stocks in the same sector are Hudson Technologies Inc. (HDSN), ScanSource, Inc. (SCSC) and Graham Corp. (GHM). All these stocks carry a Zacks Rank #2 (Buy).

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