Grainger Downgraded to Sell - Analyst Blog

On Mar 25, Zacks Investment Research downgraded W.W. Grainger Inc. GWW to a Zacks Rank #4 (Sell).

Why the Downgrade?

This leading broad line supplier of maintenance, repair and operating MRO products reported earnings per share of $2.59, up 7% year over year, on Jan 24, but short of the Zacks Consensus Estimate of $2.63 per share.

Citing a weaker Canadian dollar and the divestiture of a number of direct marketing Specialty Brands, Grainger narrowed its earnings-per-share guidance to the range of $12.10–$12.85 for fiscal 2014, from the prior guidance of $12.25–$13.00 per share. Grainger also lowered its sales growth guidance to a new range of 5% to 9%, against the prior guidance of 6% to 10%.

The trimmed guidance led to sharp negative estimate revisions for fiscal 2014 for Grainger. Of the 14 estimates available, 13 have been revised downward over the past 60 days. This led to a 3% drop in the Zacks Consensus Estimate for fiscal 2014, which now stands at $12.60 per share.

International operations are dragging down the company's performance. Management is currently evaluating the operating performance and strategic direction of some of its international businesses that are not meeting expectations.

On Mar 13, Grainger reported a 3% increase in February sales, flat with the sales growth in January. The benefit of 2 percentage points from acquisitions (net of dispositions) was offset by the unfavorable foreign exchange of 2 percentage points. Excluding acquisitions and foreign exchange, organic sales increased 3% driven by 4 percentage points from volume, 1 percentage point from increased sales of seasonal products, partially offset by a 2 percentage point decline from business disruptions due to the extreme cold weather that at times closed customer and Grainger facilities across the United States during the month.

Other Stocks to Consider

Stocks that are worth considering within this sector include Kadant Inc. KAI, Altra Industrial Motion Corp. AIMC and ScanSource, Inc. SCSC. While Kadant holds a Zacks Rank #1 (Strong Buy), Altra Industrial Motion and ScanSource hold a Zacks Rank #2 (Buy).