Grainger April Sales Rise 5% - Analyst Blog

W.W. Grainger, Inc. GWW reported a 5% year over year increase in sales in Apr 2014. However, the growth was less compared with the 8% rise registered in Mar 2014 and in April 2013.

Apr 2014 had 22 selling days, the same as last year. The gain in April sales stemmed from positive contribution from acquisitions (1 percentage points) which offset a 1 percentage points decline from foreign exchange. On an organic basis, sales improved 5% on volume growth (7 percentage points), partially offset by a decline of 2 percentage points during the timing of the Easter.

Geographically, daily sales in the U.S. rose 7%, aided by higher volume (7 percentage points) and acquisitions (2 percentage points), partly offset by the shift of Easter into April (2 percentage points).

Retail, government, heavy manufacturing, commercial and light manufacturing sales rose in the mid single-digits, followed by low single-digits gains in natural resources and reseller. Contractor sales were down in the mid single-digits.

Daily sales in Canada declined 12% in U.S. currency and 5% in local currency, impacted by the timing of the Easter and unfavorable foreign exchange rates.

Daily sales at Grainger's other businesses, which include operations in Asia, Europe and Latin America, climbed 18% as higher volume and favorable pricing (23 percentage points) were offset by negative foreign currency translation (4 percentage points) and decline during the timing of the Easter (1 percentage point).

According to Grainger, daily sales gain in May is trending in line with what was achieved in Apr.

Grainger, in its first-quarter earnings call, maintained its earnings per share guidance in the range of $12.10–$12.85 per share for fiscal 2014. Its sales growth guidance is expected to range between 5% and 9%. Grainger is expecting minimal gross margin expansion compared with 2013 due to lower gross margins from the acquired businesses.

The company is expected to benefit in the long term from its incessant focus on expanding its sales force and product offerings. Grainger also continues to invest in e-commerce and expects to increase its number of customers, utilizing this channel and its percentage of overall sales.

Furthermore, Grainger increased its quarterly dividend by 16% to $1.08 per share payable on June 1, 2014, to shareholders of record on May 12, 2014. In addition, the company also announced its plan to purchase up to 10 million shares.  Its low debt level, dividend increment and share repurchases will also drive growth.

On the flipside, Grainger's business in Canada continues to face a sluggish macroeconomic environment and an unfavorable currency exchange rate. The weakness in the Canadian economy is being driven by lower commodity prices and a reduction in Canadian exports.

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 retains a short-term Zacks Rank #3 (Hold).

Better ranked stocks in the same sector are Aggreko plc (ARGKF), AGCO Corp. AGCO and Adept Technology Inc. ADEP. All of these stocks carry a Zacks Rank #2 (Buy).

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