A month has gone by since the last earnings report for W.W. Grainger (GWW). Shares have added about 9.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is W.W. Grainger due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Grainger Beats Q4 Earnings, Misses Sales Estimates
Grainger posted fourth-quarter 2018 adjusted earnings per share of $3.96, up 35% year over year. Further, earnings beat the Zacks Consensus Estimate of $3.60 by 10%. Higher sales, operating expense leverage and a lower tax rate drove Grainger’s fourth-quarter performance.
Including one-time items, such as restructuring and other charges, earnings came in at $3.68 in the reported quarter. The figure rallied 40% from $2.63 recorded in the year-ago quarter.
Grainger reported revenues of $2,763 million, up 5% from the prior-year quarter’s figure of $2,633 million. The upside was driven by an increase of 4 percentage point (pp) from volume growth and 1 pp increase in price, partially offset by 1 pp from holiday timing. However, revenues missed the Zacks Consensus Estimate of $2,793 million.
In 2018, the company reported adjusted EPS of $16.70, up 46% from $11.46 in the year-ago quarter. Grainger reported revenues of $11,221 million in 2018, up around 7.6% from $10,425 million in 2017.
Adjusted cost of sales increased 6% year over year to $1,698 million. Adjusted gross profit increased 3% to $1,065 million from $1,032 million recorded in the year-earlier quarter. Gross margin shrunk 50 basis points (bps) to 39%.
Grainger’s adjusted operating income in the fourth-quarter increased 10% to $310 million from $281 million in the prior-year quarter. Adjusted operating margin expanded 50 bps to 11.2% in the quarter from 10.7% in the year-earlier quarter.
The company had cash and cash equivalents of $538 million at the end of the fiscal 2018 compared with $327 million at the end of 2017. Cash provided by operating activities fell to $314 million during the quarter, compared with $336 million reported in the prior-year quarter.
Long-term debt was $2.1 billion as of Dec 31, 2018, compared with $2.2 billion as of Dec 31, 2017. The company returned $741 million in cash to shareholders through $316 million in dividends and $425 million to buy back 1.4 million shares in 2018.
For 2019, Grainger expects net sales growth of 4% -8.5%. The company expects EPS in the band of $17.10-$18.70. Gross profit margin is estimated between 38.1% and 38.7%. The company also expects capex in the range of $300-$350 million.
How Have Estimates Been Moving Since Then?
Fresh estimates followed a downward path over the past two months.
At this time, W.W. Grainger has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
W.W. Grainger has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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