W.W. Grainger, Inc. GWW, has been disappointing investors of late. Shares of this provider of MRO solutions have plunged 24.5% year to date.
Estimates Moving South
The estimates for the company for second-quarter 2017, fiscal 2017 and fiscal 2018, have moved south in the past 30 days, reflecting the negative outlook of analysts. For the second quarter, the estimate has gone down 11% to $2.69 per share in the past 30 days.
For fiscal 2017, the estimate has dropped 11% to $10.53. For fiscal 2018, the estimate has declined 14% to $11.21 per share.
Negative Earnings Surprise History
The company missed the Zacks Consensus Estimate in the last reported quarter by 4.32%. Further, it has an overall negative earnings surprise of 2.01% in the trailing four quarters.
Shares of Grainger have dropped 11.7% since it reported first-quarter 2017 results on Apr 18. Adjusted earnings per share declined 9% year over year, owing to the adverse effect of strategic pricing initiatives in the U.S. and also missed the Zacks Consensus Estimate.
Lowered 2017 Guidance
Due to stronger-than-anticipated positive customer response to the U.S. strategic pricing actions, Grainger decided to accelerate pricing actions this year instead of 2018. However, the decision requires a significant reduction to the company’s earnings per share guidance for 2017.
Thus, Grainger lowered 2017 sales and earnings per share guidance. The company now guides sales growth of 1–4%, down from the earlier guidance of 2–6%. It also estimates earnings per share to be in the range of $10.00–$11.30 compared with the previous band of $11.30–$12.40.
Falling Behind the Industry
Grainger has underperformed the Zacks categorized Industrial Services sub-industry with respect to price performance in the past one year. The stock lost around 20.1% while the industry dipped 7.9%.
Near-Term Headwinds Remain
Due to stronger-than-anticipated positive customer response to the U.S. strategic pricing actions, Grainger decided to accelerate its pricing actions this year instead of 2018. However, the decision requires a significant reduction to the company’s earnings per share guidance for 2017. The company now projects U.S. price deflation of 5% for the year and a gross margin contraction of 210 basis points in 2017. Further, Grainger’s Canada segment remains a concern. The segment continues to be challenged due to elevated expenses. Additionally, the company’s oil and gas, and energy exposure in Canada is very high. Thus, fluctuation in oil prices will hamper the segment’s results.
Unfavorable Zacks Rank
Grainger currently carries a Zacks Rank #5 (Strong Sell).
Stocks to Consider
Better-ranked stocks in the same industry include are AGCO Corporation AGCO, Caterpillar, Inc. CAT and Parker-Hannifin Corporation PH. All the three stocks flaunt a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
AGCO has an average positive earnings surprise of 40.39% in the trailing four quarters. AGCO shares have gained 22.2% in the past one year. Caterpillar generated an average positive earnings surprise of 40.25% in the past four quarters. Parker-Hannifin has an average positive earnings surprise of 14.94% Caterpillar and Parker-Hannifin shares have yielded a return of 49.5% and 42.3% in the past one year, respectively.
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