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Grainger Reduces Credit Facility to Boost Liquidity Position

Zacks Equity Research

W.W. Grainger, Inc. GWW has decided to abate $1 billion from its unsecured revolving credit facility, in an attempt to boost the company’s liquidity position and secure financial flexibility in the wake of global economic uncertainty due to the coronavirus outbreak. Notably, the funds will further enhance the company’s strong cash position.

Following the drawdown, the company expects to have cash in hand of $1.5 billion, while $250 million will be available under the remaining revolving credit facility. The principal balance of borrowings under the revolving credit facility is due on Feb 14, 2025, and Grainger does not have any debt maturities prior to that date. The company expects to have adequate liquidity to navigate through this tough period.

The company is focused on health and safety of its employees and customers on account of the coronavirus outbreak. Grainger is committed to provide greater customer services and maintaining high-levels of inventory to support its customers through this pandemic and beyond.

Grainger continues to expect strong cash-flow generation for the current year. The company plans to utilize the cash in its distribution network, digital platform and IT infrastructure. The company will also continue to return cash to shareholders through share repurchase and dividends. Grainger returned $1 billion to shareholders through $328 million in dividends and $700 million to buy back 2.4 million shares in 2019.

The company is the leading supplier of maintenance, repair and operating (MRO) products in North America. The company has operations in Europe, Asia and Latin America. Hence, the coronavirus crisis might impact the company’s operations.
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. Aided by its ongoing investments in growth initiatives, Grainger outgrew the U.S MRO market by 150-200 basis points in 2019. Grainger will continue its efforts to strengthen relationships with both large- and mid-sized customers to improve sales force effectiveness, while also re-engaging lapsed customers and acquiring new ones.

Grainger’s Canada business is an attractive market and is expected to deliver double-digit operating margin growth over the next five years. The company has been focused on reducing its cost structure in the Canada operations to drive growth. Grainger has been managing inventory effectively to boost profitability, and is focused on making incremental investments in marketing and merchandising.

Share Price Performance

Grainger, along with Ardagh Group S.A. ARD, is part of the Industrial Services industry. The company’s shares have depreciated 20.1% over the past year compared with the industry’s loss of around 29.2%.

Zacks Rank & Stocks to Consider

Grainger currently carries a Zacks Rank #3 (Hold)
Some better-ranked stocks in the Industrial Products sector include Sharps Compliance Corp SMED and Tetra Tech, Inc. TTEK. While Sharps Compliance Corp sports a Zacks Rank #1 (Strong Buy), Tetra Tech carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.

Sharps Compliance has an estimated earnings growth rate of 767% for 2020. In a year’s time, the company’s shares have gained 36%.

Tetra Tech has an expected earnings growth rate of 10.7% for the ongoing year. In the past year, the company’s shares have appreciated 38%.

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