W.W. Grainger, Inc.
) went up 0.74% during
as this leading broad line supplier of maintenance, repair and
operating (MRO) products, reported first-quarter 2014 earnings
per share of $3.07, up 4% from $2.94 per share in the year-ago
quarter and ahead of the Zacks Consensus Estimate of $2.97.
Growth in the United States and online sales helped offset
weakness in Canada.
Revenues in the quarter were $2.386 billion, up 4.6% from $2.28
billion in the year-ago quarter but short of the Zacks Consensus
Estimate of $2.399 billion. There were 63 selling days in the
first quarter, same as the prior-year quarter.
Acquisitions (net of dispositions) had a positive impact of 2
percentage points which was offset by a 2 percentage point
reduction from foreign exchange. Organic sales (excluding
acquisitions and foreign exchange) increased 5% on the back of
increase in volumes (4 percentage points), pricing and higher
sales of seasonal products (1 percentage point each), partially
offset by a 1 percentage point decline from business disruptions
due to inclement weather that led to closure of some customer and
Grainger facilities during the first two months of the quarter.
Cost of sales increased 5% year over year to $1,310 million.
Gross profit increased 4% year over year to $1,076 million. Gross
margin contracted 10 basis points to 45.1%, affected by lower
gross margins from the acquired businesses.
Operating expenses increased 5% to $722 million due to increased
growth and infrastructure spending as well as incremental
expenses from the acquired businesses. Adjusted operating income
in the quarter increased 3.2% to $354 million from the $343
million in the prior-year quarter, driven by sales growth but
offset by lower gross margins and higher operating expenses.
Operating margin contracted 20 basis points to 14.9% in the
Revenues from the United States segment increased 7% year over
year to $1,897 million, driven by favorable volume, acquisitions,
and sale of seasonal products. However, it was somewhat offset by
the negative impact of a harsh winter. Solid growth was witnessed
in the Heavy and Light Manufacturing, Natural Resources, Retail
and Commercial customer end markets. Operating income rose 7% to
$354 million driven by higher sales growth and a positive expense
leverage. However, lower gross margins had a deterring effect.
Revenues from the Acklands-Grainger business in Canada dipped 10%
(down 2% in local currency) to $254 million due to decline in
volume. Among the end-markets, growth was witnessed in Utilities,
Forestry, Transportation and Reseller end markets while
Construction, Light and Heavy Manufacturing, Mining, Retail,
Government, and Oil and Gas customer remained weak.
Operating income in Canada declined 35% (down 29% in local
currency) to $21.3 million, hurt by lower sales and gross margins
and negative expense leverage.
Revenues from Other businesses (which include Asia, Europe and
Latin America) increased 11% to $275 million. Growth from volume
and price (18 percentage points) was compensated by a 7
percentage point dip due to unfavorable foreign exchange.
Improved performance in Zoro Tools and the businesses in Mexico
and Japan contributed to the increase. Furthermore, increase in
sales in Japan was offset by the weakness in the Japanese yen
versus the U.S. dollar.
The segment reported an adjusted operating profit of $8.5
million, up 3% year over year, as strong results of Zoro Tools
offset weaker performance from the businesses in Latin America
and costs associated with evaluating the new online business
outside of the United States.
Grainger had cash and cash equivalents of $376 million as of Mar
31, 2014, compared with $431 as of Dec 31, 2013. The company
generated cash flow from operating activities of $167 million
during the reported quarter, down from $176 million in the
During the quarter, Grainger paid dividends worth $65 million
and spent $150 million to buy back 0.6 million shares. Long-term
debt was $438 million as of Mar 31, 2014, compared with $445
million as of Dec 31, 2013.
Grainger maintained its earnings per share (EPS) guidance in the
range of $12.10-$12.85 per share for fiscal 2014 on the back of
5-9% growth in sales.
Grainger remains focused on expanding its product offerings,
sales force as well as the share of its private label products
which will lead to long-term growth. Moreover, Grainger expects
incremental investment spending to total approximately $130
million in 2014, marking the fourth consecutive year of growth
spending on initiatives such as new sales representatives and
investments in information technology (IT) infrastructure, new
branches and distribution centers and e-commerce.
Grainger continues to invest in e-commerce and expects to
increase the number of customers utilizing this channel and its
percentage of overall sales. Grainger crossed the $3 billion mark
in e-commerce sales in 2013, representing 33% of total company
sales. Grainger's target is to increase it to 50% by 2015.
E-commerce is one of Grainger's most efficient channels as it is
reportedly growing twice as fast as other channels and is deemed
to be Grainger's most profitable channel.
Furthermore, Grainger's sound balance sheet, low debt level and
cash flow allow the company to invest in growth opportunities,
raise dividends and reinvest capital through share repurchases.
However, the Canada segment continues to be affected by a weak
macroeconomic environment, unfavorable currency exchange, lower
commodity prices and a reduction in Canadian exports.
Lake Forest, IL-based Grainger is a leading North American
distributor of material handling equipment, safety and security
supplies, lighting and electrical products, power and hand tools,
pumps and plumbing supplies, cleaning and maintenance supplies,
forestry and agriculture equipment, building and home inspection
supplies, vehicle and fleet components, and various aftermarket
Grainger currently carries a short-term Zacks Rank #3 (Hold).
Some better-ranked stocks in the sector include
The Middleby Corp.
Altra Industrial Motion Corp.
). While Kadant holds a Zacks Rank #1 (Strong Buy), Middleby
Corporation and Altra Industrial Motion hold a Zacks Rank #2
GRAINGER W W (GWW): Free Stock Analysis
KADANT INC (KAI): Free Stock Analysis Report
MIDDLEBY CORP (MIDD): Free Stock Analysis
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