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Why Is W.W. Grainger (GWW) Up 1.9% Since Last Earnings Report?

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Zacks Equity Research
·3 min read
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A month has gone by since the last earnings report for W.W. Grainger (GWW). Shares have added about 1.9% 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 its most recent earnings report in order to get a better handle on the important catalysts.

Grainger Q4 Earnings Lag, Revenues Beat Estimates

Grainger reported fourth-quarter 2020 adjusted earnings per share of $3.66, missing the Zacks Consensus Estimate of $3.79. The bottom line also decreased 6% year over year primarily on lower operating earnings.

Including one-time items, earnings came in at $3.12 in the reported quarter. The figure surged 66% from the year-ago quarter.

Grainger’s quarterly revenues went up 3% year over year to $2.94 billion. The top line also surpassed the Zacks Consensus Estimate of $2.91 billion.
Daily sales for the quarter increased 5.6% 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 7.8% year over year to $1,914 million. Gross profit was down 5.4% year over year to $1,027 million. Gross margin contracted to 35% in the quarter from the prior-year quarter’s 38% due to the pandemic-induced headwinds.

Grainger’s adjusted operating income in the fourth quarter declined 3.8% year on year to $295 million. Adjusted operating margin came in at 10% compared with the prior-year quarter’s 10.7%.

Financial Position

The company had cash and cash equivalents of $585 million at the end of 2020, substantially up from the $360 million witnessed at the end of 2019. Cash provided by operating activities increased to $1,123 million in 2020 from $1,042 million in 2019.

Long-term debt was $2,389 million as of Dec 31, 2020, compared with $1,914 million as of Dec 31, 2019. In 2020, the company returned $939 million to shareholders through dividends and share buybacks.

2020 Results

Grainger reported adjusted earnings per share of $16.18 in 2020, down 6% from the prior-year reported figure of $16.70. However, earnings missed the Zacks Consensus Estimate of $16.32. Including one-time items, the bottom line came in at $12.82, down 16% year over year. Sales climbed 3% year over year to around $11.8 billion. The top line came in line with the Zacks Consensus Estimate.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month.

VGM Scores

At this time, W.W. Grainger has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of B on the value side, putting it in the second quintile 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 downward for the stock, and the magnitude of these revisions indicates a downward shift. 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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