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Grainger's (GWW) July Sales Up 6% on Organic Growth

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The leading broad line supplier of maintenance, repair and operating (MRO) products W.W. Grainger, Inc. (GWW) reported a 6% year-over-year increase in sales in Jul 2014. The growth remained flat with the prior-month and exceeded the growth rate of 4% achieved in the same period last year. Grainger’s shares gained 0.34% and closed at $239.58 on Aug 13.

Jul 2014 had 22 selling days, the same as last year. The gain in Jul sales stemmed from positive contribution from acquisitions (2 percentage points) partly offset by a 1 percentage point decline due to foreign currency fluctuations.

On an organic basis, sales improved 5% on volume growth (5 percentage points) and the benefit from favorable timing of the Fourth of July in the U.S. (1%) partly offset by lower sales of seasonal products (1%). This year, Fourth of July fell on a Friday unlike on a Thursday in 2013.

Geographically, daily sales in the U.S which represented 78% of Grainger’s sales in the month rose 7%, aided by higher volume (5 percentage points) and acquisitions (2 percentage points), 1 percentage point from the favorable timing, partly offset by a decline of 1 percentage point from lower sales of seasonal products.

Heavy manufacturing sales rose in the high single digits, followed by mid-single-digits gain in light manufacturing and retail. Natural resources were up in the low-double digits. Commercial and reseller were up in the low-single digits. Government sales remained flat while contractor was down in the low-single digits.

Daily sales in Canada declined 2% in U.S. currency but increased 1% in local currency. The 1 percent sales increase was driven by 2 percentage points volume growth, partially offset by a 1 percentage point decline in sales of seasonal products. Moreover, growth in the Heavy Manufacturing, Commercial, Forestry, Utilities and Transportation end markets, were partially offset by declines in the Mining, Government, Light Manufacturing, Oil and Gas, Retail and Construction customer end markets.

Daily sales at Grainger’s other businesses, which include operations in Asia, Europe and Latin America, climbed 16% as higher volume and favorable pricing (17 percentage points) were offset by negative foreign currency translation (1 percentage points). Majority of the growth came from Zoro and the businesses in Japan and Mexico, partially offset by lower sales in Europe.

According to Grainger, daily sales gain in August is expected to be line with that of July.

Grainger, in its first-quarter earnings call, maintained its earnings per share guidance in the range of $12.10–$12.85 per share for fiscal 2014. Its sales growth guidance is expected to range between 5% and 9%.

Grainger is expecting minimal gross margin expansion compared with 2013 due to lower gross margins from the acquired businesses. Operating margin is expected to expand 10 to 40 basis points during the full year, reflecting negative mix from acquisitions.

Grainger’s business in Canada continues to face a sluggish macroeconomic environment and unfavorable currency exchange. The weakness in the Canadian economy is due to lower commodity prices and a reduction of Canadian exports. Sales in the first quarter of 2014 decreased 10% and were down 2% in local currency.

Given the pacing of projects and lower-than-expected spending in the first quarter, the company is anticipating full-year incremental growth spending of approximately $115 million. Grainger also remains focused on expanding its product offerings, sales force as well as shares of its private label products.

Grainger also continues to grow through acquisitions. The company funded $154 million worth of acquisitions in 2013. In a move to grow stronger in the manufacturing arena and boast metalworking experts, Grainger acquired E&R Industrial Sales, Inc. in Aug 2013.

Further, on Jul 2014, Grainger entered into an agreement to acquire WFS Enterprises Inc., facilitating greater customer value through broader product offering, additional solutions and technical expertise.

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

Lake Forest, IL-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 holds a short-term Zacks Rank #4 (Sell).

Better ranked stocks in the same sector are ACCO Brands Corporation (ACCO), AO Smith Corp. (AOS) and ARC Document Solutions, Inc. (ARC). All of these stocks carry a Zacks Rank #2 (Buy).

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