Will Canada & Currency Woes Hit Grainger (GWW) Earnings? - Analyst Blog

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W.W. Grainger, Inc.GWW is set to release its first-quarter 2015 results before the opening bell on Apr 16. In the last quarter, the company had delivered a negative earnings surprise of 1%. Let's see how things are shaping up for this leading North American distributor of material-handling equipment, safety and security supplies.

Factors to be Considered this Quarter

Grainger's results will continue to be impacted by unfavorable foreign currency translation as well as the deteriorating macroeconomic environment in Canada. Even though sales growth had improved in the fourth quarter in Canada, currency headwinds and increased investments in supply chain and SAP implementation costs will continue to weigh on margins going forward. Moreover, lower oil prices will affect the segment's results given that about 20% of the Canada business is directly dependent on the oil and gas markets.

Grainger's gross margin continues to be under pressure due to large account customer growth and a continued low inflationary environment. Through 2015, gross margin will remain essentially flat compared with 2014. It is to be noted that large customers and single-channel online businesses carry lower gross margins.

Despite these headwinds, continued focused on expanding its product offerings, the sales force and share of its private label products, and growth in the e-commerce channel will provide some support to sales.

Earnings Whispers

Our proven model does not conclusively show that Grainger is likely to beat earnings estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.

Zacks ESP: The earnings ESP for Grainger is -1.27%. This is because the Most Accurate estimate of $3.10 is lower than the Zacks Consensus Estimate of $3.14.

Zacks Rank: Grainger's has a Zacks Rank #4 (Sell).

We caution investors against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement.

Stocks that Warrant a Look

Here are some companies you may want to consider instead as our model shows they have the right combination of elements to post an earnings beat this quarter:

AO Smith Corp. AOS has an earnings ESP of +1.64% and a Zacks Rank #2. The company is expected to report its first-quarter results on Apr 24.

Ball Corporation BLL has an earnings ESP of +2.53% and a Zacks Rank #3. It is scheduled to report its financial numbers on Apr 30.

Xylem Inc. XYL has an earnings ESP of +6.45% and a Zacks Rank #3. The company is slated to report its results on Apr 30.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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