On Apr 26, we maintained our Neutral recommendation on
distributor of facilities maintenance, repair and operating
W.W. Grainger Inc.
), based on expectations of growth opportunities through product
and geographic expansion and e-commerce; partially offset by the
recent slowdown in sales and impending pressure on
Grainger reported first-quarter 2013 earnings of $2.94 per
share, up 14% year over year from $2.57, ahead of the Zacks
Consensus Estimate of $2.73. Total revenue was $2.28 billion, up
4% from $2.19 billion in the year-ago period but missed the Zacks
Consensus Estimate of $2.3 million.
Grainger increased its EPS guidance in the range of
$11.30-$12.00 per share for fiscal 2013, up from the prior
guidance of $10.85-$12.00 per share. Grainger, however, increased
its sales growth guidance to a new range of 5% to 9%, up from the
prior projection of 3% to 9%.
We appreciate Grainger's focus on expanding its product
offerings as well as gaining traction for its private label
products. Grainger expects to increase its product count from the
current 413,000 to 500,000 products by 2015. In April,
Acklands-Grainger, Grainger's Canadian business, announced the
largest ever product expansion with the addition of 2,00,000 new
products to its online site in the coming months, more than
doubling Canada's online offering to over 300,000. The company
has historically seen annual growth of approximately 2% on sales
from products added through the program.
The company continues to expand its businesses across its
operating regions, mainly in Asia and Latin America. Grainger
also continues to invest in e-commerce, as it is reportedly
growing two fold compared to other channels and is deemed to be
its most profitable channel. In 2012, e-commerce sales
represented 30% of the total company sales. Grainger's target is
to increase it up to 50% by 2015. This channel also carries
higher margins as it requires lower selling, general and
On the flipside, Grainger's overall sales growth continued to
show a downward trend. In 2012, after enjoying a double digit run
till August, sales growth has remained in the single digits
before plunging to the lowest level of 2% in December. Even
though sales growth recovered to 8% in Jan 2013, it again dipped
to 6% in February and 3% in March. The deterioration in March was
due to the timing of the Easter holiday and customer spending
pullbacks related to sequestration within the Government end
Grainger has increased its investment spending for 2013 to
$160 million from the previous projection of $135 million. Even
though these initiatives will lead to additional share gains in
the future, it will weigh on margins in the short term.
Other Stocks to Consider
Grainger retains a short-term Zacks Rank #2 (Buy). Other
industrial product makers with favorable Zacks rank are
Insteel Industries Inc.
EnPro Industries, Inc.
) with a Zacks Rank #1 (Strong Buy),
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