On Jun 26, 2014, Zacks Investment Research upgraded
W.W. Grainger, Inc.
) to a Zacks Rank #3 (Hold) from a Zacks Rank #4 (Sell). The
upgrade came on the back of the modest improvement in sales and
expected benefits from sales initiatives. However, weakness in
sales in Canada remains a concern.
Why the Upgrade
The leading broad line supplier of maintenance, repair and
operating (MRO) products 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 May
The increase in May 2014 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 offset by a decline of 1 percentage point from lower
sales of seasonal products.
Overall sales have grown from the slow start at the beginning of
the year due to an inclement weather. The United States has
delivered the highest growth of 8% so far in 2014. Even though
Canada continued to be in the red, the rate of decline has
meandered to single digit from the double-digit dip reported in the
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.
According to Grainger, daily sales growth in June is trending in
line with May. June will have 21 selling days, one more than last
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 remains focused on expanding its product offerings, sales
force as well as shares of its private label products. The company
recently announced the purchase of 96 acres of land in Bordentown
Township, NJ. It plans to build a 1.3 million square-foot
distribution center, scheduled to open in 2016, Grainger also
continues to grow through acquisitions. In addition, Grainger's
sound balance sheet, low debt level and cash flow allow it to
further invest in growth opportunities, raise dividends and
reinvest capital through share repurchases.
We expect Grainger to perform in line with its peers in the coming
months and advice investors to wait for a better entry point before
Other Stocks to Consider
Grainger currently has a Zacks Rank #3 (Hold). Some better
performing stocks in the industry include
). While Harsco sports a Zacks Rank #1 (Strong Buy), Gorman-Rupp
and Graco hold a Zacks Rank #2 (Buy).
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