Grainger's (GWW) October Sales Rise 6% on Volume Growth - Analyst Blog

W.W. Grainger, Inc. (GWW) reported a 6% year-over-year increase in its Oct 2014 sales. However, sales growth remained below the previous month as well as the Oct 2013 rate of 7%.

October this year had 23 selling days, same as last year. The gain in October sales included positive contribution from acquisitions (1 percentage point) and a 2 percentage point decline due to foreign currency fluctuations. On an organic basis, sales improved 7%, driven by strong volume growth of 6 percentage points and a 1 percentage point contribution from sales of Ebola-related safety products.

Geographically, daily sales in the U.S. during October rose 7%, aided by higher volume (5 percentage points), benefit from sales of Ebola-related products (1 percentage point), and acquisitions (1 percentage point).

Commercial sales were up in the low-double digits, followed by mid-teen gains in natural resources. Sales in retail and reseller were up in the low-single digits. Further, heavy and light manufacturing and government sales were up in the mid-single digits, while contractor sales remained flat for the month.

Canada saw a 2% gain in sales. Daily sales in Canada gained 10% in local currency, driven by a 3 percentage points rise in volume and contribution of 1 percentage point from price and 7 percentage points from the recent WFS Enterprises acquisition, partially offset by a 1 percentage point decline due to lower sales of seasonal products. Volume growth was driven by sales to customers in the Heavy Manufacturing, Retail, Commercial, Transportation, Government, Forestry, Reseller and Oil & Gas end markets.

Daily sales at Grainger's other businesses, which include operations in Asia, Europe and Latin America, climbed 16% as higher volume (23 percentage points) were offset by negative foreign currency translation (7 percentage points). In local currency, sales for the business in Japan grew in the mid-thirties, while sales for the business in Mexico grew in the low-double digits. Zoro continued its trend of triple-digit growth for the month of October.

According to Grainger, daily sales gain in November is trending in line with that achieved in October. Fourth-quarter 2014 will have 64 selling days, the same as the fourth quarter of 2013.   

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 margins 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. Grainger's operating margin in 2014 is expected to be 14.3%, excluding restructuring charges and unusual items.

Grainger will benefit from investment in its single channel online businesses. Revenues for these businesses, which include MonotaRO in Japan and Zoro in the U.S., Canada and Europe, are expected to increase 33% to approximately $800 million in 2015, contributing two to three percentage points to total company revenue growth.

Given the strong growth of these businesses, the company plans to aggressively invest in the development of the single channel online model in Europe, representing approximately 20 cents to 25 cents per share in costs for 2015. The company is also planning to increase its investments in growth and infrastructure in 2015 by an incremental $115 million to $150 million.

In addition, Grainger continues to grow through acquisitions. Its three recently acquired businesses in the U.S., Techni-Tool, E&R Industrial Sales and Safety Solutions, are outperforming their sales and earnings projections and the company remains on track with its integration plans.

Recently, Grainger's Canadian business, Acklands-Grainger, closed the acquisition of WFS Enterprises Inc., a leading distributor of tools and supplies to the industrial markets in Southern Ontario and select U.S. locations. This will facilitate greater customer value through broader product offering, additional solutions and technical expertise.

Furthermore, Grainger's sound balance sheet, low debt level and cash flow allow the company to invest in growth opportunities, raise dividends and reinvest capital through share repurchases.

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 #4 (Sell).

Better ranked stocks in the same sector are Briggs & Stratton Corporation (BGG), Adept Technology Inc. (ADEP) and Allegion plc Ordinary Shares (ALLE). All these stocks carry a Zacks Rank #1 (Strong Buy).
 

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