) is scheduled to announce its second quarter fiscal 2012 results
on July 18, 2012. The current Zacks Consensus Estimate is $2.63 for
the quarter, projecting year-over-year growth of 14.9%. The
estimates in the current Zacks Consensus range between a low $2.57
and a high of $2.74 a share. The Zacks Consensus Revenue Estimate
is $2.27 billion for the quarter under discussion.
With respect to earnings surprise, over the trailing four quarters,
Grainger outperformed the Zacks Consensus Estimate. The average
earnings surprise was 3.95%, implying that the company has
surpassed the Zacks Consensus Estimate by the same magnitude over
the last four quarters.
Previous Quarter Recap
Grainger's first quarter 2012 earnings per share increased 19% year
over year to $2.57 per share, exceeding the Zacks Consensus
Estimate of $2.51. The improvement was due to expansion in its
product line as well as in the international markets, eCommerce and
inventory management services.
Revenues in the quarter were $2.193 billion, up 16% from $1.884
billion in the year-ago period. Revenues also surpassed the Zacks
Consensus Estimate of $2.179 billion. The improvement in revenue in
the quarter was attributed to volume growth, favorable pricing and
also acquisitions, partly offset by the negative impact of lower
sale of seasonal products in U.S. and Canada and unfavorable
Following the first quarter results, the company reported
year-over-year sales growth of 12% in April 2012 and 13% in May
2012. However, growth trailed the levels attained in March (15%),
February (18%) and January (17%) this year.
For 2012, the company envisions sales growth in the range of 12% to
14% and earnings per share between $10.40 and $10.80.
Estimate Revision Trend
For the second quarter as well as fiscal 2012, 4 out of the 13
analysts covering Grainger have reduced their estimates over the
past 30 days. This was driven by disappointing sales growth in
April and May and the entry of
) in the maintenance, repair & operations (MRO) space. There
has been no movement in estimates for the second quarter of fiscal
2012 in the past 7 days.
Magnitude of Estimate Revisions
The consensus earnings estimate for the second quarter of fiscal
2012 decreased a cent to $2.64 in the last 30 days following
Grainger's May results. In the last 7 days the estimate has slipped
another cent to $2.63. For fiscal 2012, the estimate had gone up 4
cents to $10.72 following the upbeat first quarter results.
However, in the past 30 days the consensus slid down 3 cents to
$10.69 over the past 30 days. In the past 7 days, the estimate has
gone down another 3 cents to reach $10.66.
Grainger remains focused on expanding its product offerings and
growing the share of its private label products. The company's most
recent catalog, issued in February 2012, offers about 413,000
facilities maintenance and other products, up from 350,000 products
listed in the February 2011 issue.
It has a long-term vision to expand the product count to 500,000
by 2015. The company has historically seen growth of approximately
2% per year on sales from products added through the program.
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Grainger also focuses on expansion programs for strengthening its
businesses in each of its operating regions, mainly in Asia and
Latin America. Revenues from Other Businesses jumped 104%
year-over-year in first-quarter 2012, reflecting strong growth in
Japan and Mexico and the Fabory acquisition.
However, the recent slowdown in the sales growth rate raises our
concern. Margins are expected to remain under pressure due to
Grainger's accelerated investments in product line expansion, sales
force expansion, eCommerce, inventory services, distribution
centers and international expansion.
Furthermore, Amazon has recently launched www.AmazonSupply.com, a
website offering more than 500,000 parts/supplies to business,
industrial, scientific and commercial customers at competitive
prices. Grainger, so long a dominant player in industrial
maintenance, repair & operations distribution, would face
pricing pressure with the entry of Amazon.
The company currently retains a Zacks #3 Rank (short-term Hold
Illinois-based Grainger is a leading North American distributor of
material handling equipment including safety and security supplies,
lighting and electrical products, power and hand tools, pumps and
plumbing supplies, etc. The company's services comprise inventory
management and energy efficiency solutions. The company competes
Applied Industrial Technologies Inc.
WESCO International Inc.