W.W. Grainger, Inc.
) dipped 1.21% to close at $265 on Nov 13, as the leading broad
line supplier of maintenance, repair and operating (MRO) products
announced lower-than-expected 2014 earnings guidance at its
Grainger initiated guidance for the fourth quarter of 2013. Sales
are projected to grow 6% to 8% year over year in the quarter.
Compared to fourth quarter 2012 revenues of $2.2 billion, this
translates to revenues of $2.36 to $2.40 billion. Earnings per
share are expected to range between $2.53 and $2.73 for the
quarter. This reflects a 5% to 13% increase from year-ago
quarter's earnings of $2.42 a share. The current Zacks Consensus
Estimate is within the guided range as revenues are pegged at
$2.38 billion and earnings are projected to be $2.67 a share.
Based on our estimates, revenues and earnings per share are
expected to improve 7% and 10% year over year, respectively.
Grainger reiterated its fiscal 2013 guidance of revenue growth in
the range of 5% to 6%. This translates to revenues of $9.4
billion to $9.5 billion for the current fiscal compared to base
revenues of $8.5 billion in fiscal 2012. Earnings are forecasted
between $11.45 and $11.65 a share for fiscal 2013, reflecting an
annual growth of 10% to 12%. The Zacks Consensus Estimate for
2013 revenues are pegged at $9.46 billion and earnings per share
at $11.57, depicting 6% and 11% annual growth, respectively.
For 2014, the company initiated guidance with sales growth
projected between 6% to 10% and earnings per share in the band of
$12.25 to $13.00. The earnings guidance is however below the
current Zacks Consensus Estimate of $13.18, which reflects 14%
Grainger also provided an update on its longer-term financial
objectives. By 2019, operating margins are targeted to be in the
range of 16% to 17%. This is expected to be driven by organic
sales growth in high-single digits and operating margin expansion
of approximately 30 to 60 basis points per year.
The company expects long-term benefits from its sustained focus
on expanding sales force, product offerings and strengthening
businesses across all operating regions, particularly Asia and
Latin America. The company will continue to invest in e-commerce
-- its most profitable channel. For 2013, eCommerce sales are
projected at $2.3 billion and Grainger's target is to increase
the share of eCommerce sales to 50% of total sales by 2015.
Furthermore, Grainger's sound balance sheet, low debt level and
cash flow allow the company to hike dividends and reinvest
capital through share repurchases as well as invest in
acquisitions and growth opportunities. Grainger's acquisition of
E&R Industrial Sales, Inc. in August this year will extend
Grainger's capabilities in serving customers in the manufacturing
However, the recent slowdown in sales is a point of concern.
Furthermore, incremental growth will weigh on margins in the
short term. Sequestration remains a headwind for the federal
government business, particularly in the Military business.
Lake Forest, Ill-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 #4 (Sell).
Favorable options in the industry include
), with a Zacks Rank #1 (Strong Buy) and
Hudson Technologies Inc.
), both holding a Zacks Rank #2 (Buy).
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