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What's in the Offing for Grainger (GWW) in Q1 Earnings?

Zacks Equity Research

W.W. Grainger, Inc. GWW is scheduled to report first-quarter 2019 results on Apr 22, before the opening bell.
 
In the last reported quarter, the company’s adjusted earnings per share improved 35% year over year to $3.96, beating the Zacks Consensus Estimate by 10%. Stellar sales, operating expense leverage and a lower tax rate drove Grainger’s fourth-quarter 2018 performance.

Grainger reported revenues of $2,763 million in the fourth quarter, up 5% year over year. However, the figure missed the Zacks Consensus Estimate of $2,793 million.

Grainger surpassed the Zacks Consensus Estimate over the trailing four quarters, recording average positive surprise of 13.50%.

Shares of the company have appreciated around 7.5% over the past year, outperforming 5% growth recorded by the industry.


 

Let’s see how things are shaping up prior to this announcement.

Factors at Play

Grainger generates revenues from the distribution of MRO (Maintenance, Repair and Overhaul) supplies and products and related services. In the United States, business investment and exports are two major indicators of MRO spending. Business investment is likely to remain solid this year, supported by expanding global markets, lower capital costs and an improving regulatory environment. The Zacks Consensus Estimate for Grainger’s quarterly sales in the Unites States is $2.2 billion, reflecting a year-over-year rise of 5%. The Zacks Consensus Estimate for adjusted operating income of the segment is pegged at $359 million for the to-be-reported quarter, representing a year-over-year improvement of 2%. Further, Grainger is well poised to benefit from its efforts to strengthen relationship with customers in the United States.
 
Grainger is focused on improving end-to-end customer experience by making investments in its e-commerce and digital capabilities, and implementing improvement initiatives within the company’s supply chain. Notably, the company intends to continue reducing its cost base. The company has combined its Gamut and grainger.com capabilities, and made incremental investments in digital marketing.

Grainger has been focused on improving margins and reducing the cost structure of its Canada operations to drive growth. Per the Zacks Consensus Estimates, net sales in the Canada segment will likely drop around 17.5% to $150 million in the quarter under review. The segment will also likely report an adjusted operating income of $1.25 million, as against the operating loss of $9 million posted in first-quarter 2018.

The Zacks Consensus Estimate for Grainger’s earnings per share is pegged at $4.42 for the Jan-Mar quarter, reflecting year-over-year growth of 5.7%. The Zacks Consensus Estimate for total sales is pegged at $2.89 billion, indicating an increase of 4.5% from the prior-year quarter.

However, Grainger’s results are anticipated to be affected by input cost inflation and foreign exchange headwinds. The company is also plagued with rising freight costs. Additionally, Grainger’s margin performance will be impacted by rising expenses owing to investments in digital marketing capabilities. 

W.W. Grainger, Inc. Price and EPS Surprise

W.W. Grainger, Inc. Price and EPS Surprise | W.W. Grainger, Inc. Quote

Earnings Whispers

Our proven model does not conclusively show a beat for Grainger this earnings season as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here as you will see below:

Earnings ESP: Earnings ESP for Grainger is -9.46%. The Most Accurate Estimate and the Zacks Consensus Estimate for first-quarter earnings are currently pegged at $4.00 and $4.42 respectively. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Grainger currently carries a Zacks Rank #3.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Stocks to Consider

Here are a few other companies that you may want to consider, as our model shows these too have the right combination of elements to post an earnings beat this quarter:

Valmont Industries, Inc. VMI has an Earnings ESP of +11.60% and carries a Zacks Rank #3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon Enterprise, Inc. AAXN has an Earnings ESP of +6.99% and carries a Zacks Rank #3.

Dover Corporation DOV has an Earnings ESP of +0.25% and it presently carries a Zacks Rank #3.

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Dover Corporation (DOV) : Free Stock Analysis Report
 
Valmont Industries, Inc. (VMI) : Free Stock Analysis Report
 
W.W. Grainger, Inc. (GWW) : Free Stock Analysis Report
 
Axon Enterprise, Inc (AAXN) : Free Stock Analysis Report
 
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