W.W. Grainger, Inc.
) reported adjusted earnings per share of $2.42 for the fourth
quarter of 2012, up 14% year over year from $2.13 but well short
of the Zacks Consensus Estimate of $2.61.
Including restructuring charge (18 cents) for improving the
long-term performance of the businesses in Europe, India and
China and 3 cents per share related to branch closures in the
United States and an impairment charge of 4 cents per share
related to acquisition of Alliance Energy Solutions in November
2009, EPS in the quarter was $2.17.
Including 16 cents per share charge from the closure of 27
branches in the U.S, and a gain of 7 cents per share from the
sale of the company's investment in MRO Korea, EPS in the
prior-year quarter stood at $2.04.
Revenues in the quarter were $2,226.1 million, up 7.2% from
$2.08 billion in the year-ago period but missed the Zacks
Consensus Estimate of $2,237 million. On a daily basis, sales
improved 6% on volume growth, pricing, acquisitions and increase
in sales from Hurricane Sandy-related products, offset by a
negative impact due to the timing of the December holidays.
On a daily basis, sales improved 6% in October, 8% in
November and 2% in December.
Adjusted operating income in the quarter increased 18% to $283
million, primarily driven by higher sales volume and operating
expense leverage as expenses grew at a slower rate than sales.
Operating margin expanded 110 basis points to 12.7% in the
Revenues from the United States segment increased 5% year over
year to $1.71 billion, driven by favorable volume, price growth,
increased sales due to Hurricane Sandy related sales, offset by
the timing of December holidays. On a daily basis, sales improved
4% in October, 6% in November and 1% in December. Operating
income rose 17% to $276 million, driven by higher sales and
positive expense leverage.
Revenues from the Acklands-Grainger business in Canada climbed
14% to $280 million, led by strong growth in the commercial,
construction, oil and gas, and utilities end markets. On a daily
basis, segment sales improved 12% in October, 8% in November and
5% in December. Operating income in Canada was up 2% to $30
million as benefits from a favorable foreign exchange, modest
expense leverage, were partially offset by lower gross
Revenues from Other businesses (which include Asia, Europe and
Latin America) increased to $263.8 million from $226.9 million in
the year-ago quarter, driven by strong growth in Japan and
acquisitions in Brazil. Sales for Other Businesses increased 10%,
excluding the effect of the acquisitions. The segment reported an
adjusted an operating profit of $3.3 million compared with $5.4
million in the year-ago quarter.
During the quarter, Grainger announced structural changes to
the businesses in Europe, India and China to improve its
long-term performance. This resulted in $13.7 million in
restructuring charges. Including this, the segment reported an
operating loss of $10.4 million.
Fiscal 2012 Performance
Grainger reported adjusted EPS of $10.43 in fiscal 2012, up
15% from $9.04 in the prior fiscal but fell short of the Zacks
Consensus Estimate of $10.62. Including one-time items, EPS in
the fiscal stood at $9.52 compared with $9.07 in 2011. Revenues
in fiscal 2012 were $8.95 billion, up 11% year over year but
missed the Zacks Consensus Estimate of $8.96 billion.
Grainger had cash and cash equivalents of $452 million as of
fiscal 2012 end compared with $335.5 million as of fiscal 2011
end. Long-term debt was worth $467 million as of fiscal 2012 end,
compared with $175 million as of fiscal 2011 end.
The company generated cash flow from operating activities of
$816 million during the year, up from $746 million in the prior
year. Grainger expended $250 million in capital expenditures
during the year compared with $197 million in the prior year,
driven primarily by investments to expand the distribution center
network in North America.
Grainger paid dividends worth $220 million in 2012 and spent
$341 million to buy back 1.7 million shares. The company has
approximately 5.3 million shares remaining in its share
Grainger reaffirmed its EPS guidance in the range of
$10.85-$12.00 per share for fiscal 2013. Grainger, however,
increased its sales growth guidance to a new range of 3% to 9%,
up from the prior projection of 2% to 8%. The increase in
guidance reflects the acquisition of Techni-Tool, Inc. in
Grainger remains focused on expanding its product offerings
and growing the share of its private label products. The company
currently added 80,000 products during the year, bringing its
current offering to 413,000 products. Grainger 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.
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 continue its
solid growth run, reflecting strong growth in Japan and Mexico
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. Grainger
continues to invest in e-commerce and expects to increase the
number of customers utilizing this channel and its percentage of
Grainger posted $2.7 billion in eCommerce sales in fiscal
2012, representing 30% of the total company sales and an increase
of 23% from the prior year. There is also scope to increase it up
to 50% in the next five years. This channel also carries higher
margins as it requires lower selling, general and administrative
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. Grainger
currently retains a short-term Zacks Rank #4 (Sell).
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
Grainger's peers such as
Hudson Technologies Inc.
TMS International Corp.
), have yet to announce their earnings results.
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