W.W. Grainger, Inc.
) reported record earnings per share (EPS) for the second quarter
2012, which increased 18% year over year to $2.63 per share, in
line with the Zacks Consensus Estimate.
Including a 2 cents per share benefit from the settlement of tax
examinations, EPS in the prior year quarter was $2.34. Compared to
this, EPS in the current quarter posted a climb of 12%.
Revenues in the quarter were $2.25 billion, up 12% from $2 billion
in the year-ago period. Revenues fell short of the Zacks Consensus
Estimate of $2.26 billion. The improvement in revenue in the
quarter was attributed to volume growth, favorable pricing and also
acquisitions, partly offset unfavorable foreign exchange. On a
daily basis, sales improved 12% in April, 13% in May and 12% in
Operating earnings in the quarter improved 18% to $314 million,
primarily driven by higher sales volume and gross margins and
positive operating leverage.
Revenues from the United States segment increased 7% year over year
to $1.70 billion, driven by favorable volume and price growth. On a
daily basis, sales increased 7% in April, 8% in May and 7% in June.
Operating income in the segment rose 15% to $310.7 million, mainly
due to higher sales and gross margins and positive leverage in
expenses from the region.
Revenues from the Acklands-Grainger business in Canada climbed 9%
to $279.6 million, due to improvements in the commercial services,
oil and gas, contractor and utilities end markets. On a daily
basis, segment sales increased 13% in April, 14% in May and 14% in
June. Operating income in Canada expanded 15% to $33.5 million as a
result of strong sales, improvement in gross margins as well as
positive leverage in operating expense.
Revenues from Other businesses (which include Asia, Europe and
Latin America) jumped 84% year over year to $249 million, driven by
strong growth in Japan and increase in sales from the Fabory and
AnFreixo acquisitions. Sales for Other Businesses increased 21%
excluding the effect of the acquisitions. Operating earnings
increased 30% to $11.2 million brought about by the strong earnings
growth in Japan and Mexico.
Grainger had cash and cash equivalents of $249.7 million as of June
30, 2012, compared with $338.8 million as of March 31, 2012.
Long-term debt was worth $473.5 million as of June 30, 2012
compared with $191.6 million as of March 31, 2012. Change in the
long-term debt was due to the refinancing of an existing bank term
The company generated net cash of $132 million from operating
activities in the reported quarter, up from $191 million in the
prior-year quarter. Grainger expended $56 million as capital
expenditures in the second quarter of 2012 compared to $52 million
in the year-ago quarter.
Grainger paid dividends worth $58 million in the reported quarter
and expended $149 million for the buyback of 760,000 shares. The
company has approximately 6 million shares remaining on its share
For 2012, the company maintained its forecast of sales growth in
the range of 12% to 14% and raided its EPS guidance range to $10.50
and $10.80 from the previous guidance between $10.40 and $10.80.
Grainger remains focused on expanding its product offerings and
growing the share of its private label products. The company
currently offers 413,000 products and 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 and
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.
) has recently launched www.AmazonSupply.com, a website offering
more than 500,000 parts/supplies to business, industrial,
scientific and commercial customers at competitive prices.
Grainger, so long a dominant player in industrial maintenance,
repair & operations distribution, would face pricing pressure
with the entry of Amazon.
The company currently retains a Zacks #3 Rank (short-term Hold
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 solutions. The company competes
Applied Industrial Technologies Inc.
WESCO International Inc.
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