Grainger November Sales Rise 8% on Volume, Acquisitions - Analyst Blog

W.W. Grainger, Inc. (GWW) reported an 8% year-over-year increase in its Nov 2014 sales, delivering the highest growth so far this year. Overall sales have grown from the slow start, due to inclement weather, at the beginning of the year. So far in 2014, the United States delivered the highest growth of 9% in November while Canada improved considerably from the decline witnessed till May and the low-single digit growth till October.

November this year had 19 selling days, one fewer than last year. The gain in November sales included a one percentage point positive contribution from acquisitions and two percentage point decline due to foreign currency fluctuations, mainly due to a weak Canadian dollar.

On an organic basis, sales improved 9% driven by strong volume growth of seven percentage points, one percentage point contribution from sales of Ebola-related safety products and one percentage point from increased sales of seasonal products.

Geographically, daily sales in the U.S. during November rose 9%, aided by higher volume (six percentage points), increased sales of seasonal products (two percentage points) and sales of Ebola-related products (one percentage point).

Natural Resources was up in the high teens followed by commercial sales, which were up in the mid-teens driven by Oil and Gas, Refining, Mining and Agriculture customers. Sales increased in the mid-teens in commercial driven by sales of Ebola-related safety products to Healthcare customers. Sales in Light and Heavy Manufacturing and Resellers were up in the high-single digits. Further, government and retail were up in the mid-single digits and contractor was down in the low-single digits.

Canada saw a 5% gain in sales. Daily sales in Canada gained 13% in local currency, which included a seven percentage points contribution from the recent WFS Enterprises acquisition. Organic daily sales increased 6%, driven by five percentage points from volume and one percentage point from price. The volume growth was led by sales to customers in the Oil & Gas, Transportation, Commercial, Heavy and Light Manufacturing, Retail, Government, Utilities, Forestry, Contractor and Reseller customer end markets.
 
Daily sales at Grainger’s other businesses, including operations in Asia, Europe and Latin America, climbed 15% as higher volume (23 percentage points) were offset by negative foreign currency translation (8 percentage points), which was mainly due to weakness in the Japanese yen and Mexican peso versus the U.S. dollar.

In local currency, sales for the business in Japan grew more than 30%, while sales for the business in Mexico grew in the mid-teens. Grainger’s single channel online model in the United States, Zoro, grew more than 100%, continuing its trend of triple-digit growth.

According to Grainger, daily sales gain in November is trending in the mid-to-high single digits. On a reported basis, daily sales growth to date is trending in the low-single digit range in December.

In an analyst meet on Nov 12, Grainger provided its outlook for the fourth quarter and full-year 2014. Grainger projected sales to grow in the range of 4% to 5.5% and expects earnings per share of $2.75 to $2.85. For fiscal 2014, the company reiterated its guidance of 5% to 5.5% growth in sales, while earnings per share are expected to be in the band of $12.20 to $12.30.

For 2015, Grainger projected sales growth of 5% to 9% and expects earnings per share in the range of $12.90 to $13.80. The company reiterated its operating margin range of 16% to 17% by the year 2019.  This improvement is expected to come from organic sales growth in the high-single digits and long-term operating margin expansion averaging 30 to 60 basis points per year.

The company is focused on expanding its product offerings and sales force while it continues to invest in e-commerce and grow through acquisitions. Moreover, Grainger is expanding its single channel sales strategy, exiting unprofitable markets and restructuring operations.

However, margins in its Canada business remain threatened by unfavorable currency translation and additional investments. Gross margins also remain under pressure due to shift toward large customers and single-channel online business.

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 components.

Grainger currently holds a Zacks Rank #3 (Hold).

Better-ranked stocks in the same sector are Briggs & Stratton Corporation (BGG), Alamo Group, Inc. (ALG) and ScanSource, Inc. (SCSC). While Briggs & Stratton and Alamo Group sport a Zacks Rank #1 (Strong Buy), ScanSource holds a Zacks Rank #2 (Buy).

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