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Why Is W.W. Grainger (GWW) Up 13.1% Since Last Earnings Report?

Zacks Equity Research
·3 min read

It has been about a month since the last earnings report for W.W. Grainger (GWW). Shares have added about 13.1% 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's Q3 Earnings & Sales Beat Estimates, Up Y/Y

Grainger reported third-quarter 2020 adjusted earnings per share of $4.52, which beat the Zacks Consensus Estimate of $4.13. The bottom line increased 6% year over year primarily on improved operating earnings and lower average shares outstanding in the current period, partly offset by a higher tax rate.

Including one-time items, earnings came in at $4.41 in the reported quarter. The figure increased 4% from the year-ago quarter’s $4.25.

Grainger’s revenues were up 2.4% year over year to $3.02 billion. The top line also surpassed the Zacks Consensus Estimate of $2.97 billion.

Daily sales for the quarter increased 2.4% compared with the prior-year quarter. This increase in sales primarily resulted from share gains in the U.S. segment and significant growth in the endless assortment businesses, offsetting declines in the Canada segment.

Operational Update

Adjusted cost of sales increased 5.2% year over year to $1,944 million. Gross profit was down 2.3% year over year to $1,074 million. Gross margin contracted to 35.6% in the quarter from 37.2% in the prior-year quarter due to pandemic-induced headwinds. The continued business unit mix impact from faster growth in the lower-margin endless assortment businesses also hurt gross margins.

Grainger’s adjusted operating income in the third quarter climbed 10.3% year over year to $374 million. Adjusted operating margin expanded to 12.4% compared with the prior-year quarter’s 11.5%.

Financial Position

The company had cash and cash equivalents of $859 million at the end of third-quarter 2020, substantially up from the $360 million witnessed at the end of 2019. Cash provided by operating activities increased to $787 million in the first nine-month period of 2020 from the year-ago comparable figure of $770 million.

Long-term debt was $2,388 million as of Sep 30, 2020, compared with $1,914 million as of Dec 31, 2019. The company returned $82 million to shareholders through dividends in the quarter.

The company repaid the revolving credit facility and increased the dividend in the September-end quarter. It also plans to restart its share-repurchase program in the fourth quarter of 2020.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision.

VGM Scores

Currently, W.W. Grainger has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, 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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