The leading broad line supplier of maintenance, repair and
operating (MRO) products
W.W. Grainger, Inc.
) reported a 6% year-over-year increase in sales in May 2014. The
growth has exceeded the prior-month increase of 5% and is also up
from the growth rate of 5% achieved in the same period last year.
However, Grainger's shares fell over 3% and closed at $260.21 on
Jun 12, primarily due to decline in daily sales in Canada
which continues to affect Grainger's sales.
May 2014 had 21 selling days, compared with 22 last year. The gain
in May sales stemmed from positive contribution from acquisitions
(2 percentage points), partly offset by a 1 percentage point
decline due to foreign currency fluctuations primarily related to
the weakness in the Canadian dollar.
On an organic basis, sales improved 5% on volume growth (6
percentage points), partially offset by a decline of 1 percentage
point from lower sales of seasonal products.
Geographically, daily sales in the U.S. rose 8%, aided by higher
volume (7 percentage points) and acquisitions (2 percentage
points), and a decline of 1 percentage point from lower sales of
Heavy manufacturing sales rose in the high single-digits, followed
by mid single-digits gain in light manufacturing, natural
resources, commercial and government. Retail sales were up in the
low double digits. Reseller was up in the low single-digits.
Contractor sales were down in the mid single-digits.
Daily sales in Canada declined 7% in U.S. currency and 1% in local
currency, impacted by flat volume and lower sales of seasonal
products. Growth in Commercial, Utilities, Heavy Manufacturing,
Forestry and Transportation clientele were offset by declines in
the Oil and Gas, Construction, Light Manufacturing, Agriculture,
Government, Retail and Reseller consumers.
Daily sales at Grainger's other businesses, which include
operations in Asia, Europe and Latin America, climbed 16% as higher
volume and favorable pricing (18 percentage points) were offset by
negative foreign currency translation (2 percentage points).
Majority of the growth came from online businesses, MonotaRO in
Japan and Zoro in the U.S.
Reflecting on last year's sales growth figures, we notice an
inclination toward upper single digits till December. The momentum
slowed with softer-than-expected sales growth in the first two
months of this year. However, a sales growth of 5% was recorded in
According to Grainger, daily sales gain in June is expected to be
line with what was achieved in May. June will have 21 selling days,
one more than June of last year.
Grainger, in its first-quarter earnings call, maintained its
earnings per share guidance in the range of $12.10-$12.85 per share
for fiscal 2014. Its sales growth guidance is expected to range
between 5% and 9%.
Grainger is expecting minimal gross margin expansion compared with
2013 due to lower gross margins from the acquired businesses.
Operating margin is expected to expand 10 to 40 basis points during
the full year, reflecting negative mix from acquisitions.
Grainger's business in Canada continues to face a sluggish
macroeconomic environment and unfavorable currency exchange. The
weakness in the Canadian economy is due to lower commodity prices
and a reduction of Canadian exports. Sales in the 2014 first
quarter decreased 10% and were down 2% in local currency.
Given the pacing of projects and lower-than-expected spending in
the first quarter, the company is anticipating full-year
incremental growth spending of approximately $115 million. This is
down from the previous guidance of $130 million and actual spending
of $132 million in 2013.
However, Grainger remains focused on expanding its product
offerings, sales force as well as shares of its private label
products. In the United States, Grainger added 180 new sales
representatives in 2013.
In line with this, Grainger announced the purchase of 96 acres of
land in Bordentown Township, NJ, on Jun 13, 2014. The company
plans to build a 1.3 million square-foot distribution center, which
will allow getting more products to customers. The distribution
center is scheduled to open in 2016.
Grainger also continues to grow through acquisitions. The company
funded $154 million worth of acquisitions in 2013. In a move to
grow stronger in the manufacturing arena and boast metalworking
experts, Grainger acquired E&R Industrial Sales, Inc. in Aug
In addition, Grainger's sound balance sheet, low debt level and
cash flow characteristics allow the company to further invest in
growth opportunities, raise dividends and reinvest capital through
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 holds a short-term Zacks Rank #4 (Sell).
Better ranked stocks in the same sector are
HollySys Automation Technologies, Ltd.
). All of these stocks sport a Zacks Rank #1 (Strong Buy).
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