W.W. Grainger Inc.
(
GWW
) reported its earnings results for the first quarter 2012;
increasing 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.
Operational Update
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. On a daily basis, sales
improved 17% in January, 18% in February and 15% in March.
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 sales of seasonal products
in U.S. and Canada and unfavorable foreign exchange.
Operating earnings in the quarter improved 16% to $304 million,
primarily driven by higher sales volume and gross profit margins,
partially offset by steeper operating expenses. The increase in
operating expenses was triggered by volume-related costs, corporate
services-related costs; expenses related to the acquired Fabory
business and increased spending towards the company's growth
programs.
Segment
Performance
Revenues from the
United States
segment increased 11% year over year to $1.70 billion, driven
by favorable volume and price growth, partially offset by the
negative impact from the lower sales of seasonal products. On a
daily basis, sales increased 11% in January, 12% in February and 9%
in March.
Operating income in the segment rose 17% to $298.9 million,
mainly due to higher sales and positive leverage in expense from
the region.
Revenues from the
Acklands-Grainger
business in Canada climbed 13% to $272.9 million, thanks to the
improvements in the transportation sector, construction,
agriculture and mining customer end markets, partially offset by a
decrease in sales to the government. On a daily basis, segment
sales increased 19% in January, 14% in February and 11% in
March.
Operating income in Canada expanded 24% to $29.7 million as a
result of strong sales, improvement in gross margins and sales as
well as positive leverage in operating expense.
Revenues from
Other
businesses (which include Asia, Europe and Latin America)
jumped 104% year over year to $238.9 million, driven by strong
growth in Japan and Mexico and increase in sales from the Fabory
acquisition.
Operating earnings increased 67% to $10.7 million brought about
by strong earnings growth in Japan and Mexico. Sales for Other
Businesses increased 33% excluding the Fabory acquisition.
Financial Position
Grainger had cash and cash equivalents of $338.8 million as of
March 31, 2012, compared to $335.5 million as of December 31, 2011.
Long-term debt was worth $191.6 million as of March 31, 2012,
compared to $175.1 million as of December 31, 2011.
The company generated net cash of $106.2 million from operating
activities as of March 31, 2012, up from $118.4 million as of March
31, 2011. Grainger used cash from operations to fund capital
expenditures of $41 million in the first quarter of 2012 compared
to $33 million in the year ago quarter, mainly due to the expansion
of the distribution center network in the United States.
Grainger paid dividends worth $47 million in the reported
quarter and expended $62 million for the buy-back of 291,000
shares. In total, the company returned $109 million to shareholders
in the quarter.
Outlook
For 2012, the company increased its forecast of sales growth in
the range of 12% to 14% from the previous guidance range of 10% to
14%, and earnings per share between $10.40 and $10.80 from the
previous guidance between $9.90 and $10.65.
Our Take
Grainger's sound balance sheet, low debt level and cash flow are
some of the characteristics that enable the company to further
invest in growth opportunities, increase dividends and reinvest
capital through share repurchases.
Currently, the shares of Grainger have a Zacks #2 Rank
(short-term "Buy" rating). We have a long-term Outperform
recommendation on the stock.
Illinois-based W.W. Grainger Inc. 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 with
Applied Industrial Technologies Inc.
(
AIT
) and
WESCO International Inc.
(
WCC
).
APPLD INDL TECH (
AIT
): Free Stock Analysis Report
GRAINGER W W (
GWW
): Free Stock Analysis Report
WESCO INTL INC (
WCC
): Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment
Research