Grainger (GWW) Beats Q3 Earnings, Trims FY16 Guidance

W.W. Grainger, Inc.’s (NYSE:GWW) third-quarter 2016 adjusted earnings per share of $3.06, an increase 1% from the prior-year figure of $3.03. Additionally, earnings beat the Zacks Consensus Estimate of $3.02.

Including one-time items, earnings were $3.05 per share in the reported quarter, up 4% year over year.

Operational Update

Revenues of roughly $2,596 million went up 3% from the year-ago quarter figure of $2,533 million. However, it fell marginally short of the Zacks Consensus Estimate of $2,600 million. There were 64 selling days in the reported quarter, same as the prior-year period.

The sales increase for the quarter included a 2 percentage point (pp) contribution from the Cromwell acquisition and a 1 pp contribution from foreign exchange. Excluding acquisition and impact of foreign exchange, organic sales were flat year over year as a 1 pp contribution from sales of seasonal products was offset by a 1 pp reduction in price.

Cost of sales increased 6% year over year to $1,557 million. Gross profit decreased 2% to $1,040 million from $1,062 million in the year-ago quarter. Gross margin declined 190 basis points to 40% due to unfavorable customer mix and price deflation exceeding product cost deflation.

Grainger’s adjusted operating income in the quarter went down 5% to $332 million from $352 million in the prior-year quarter. Operating margin slumped 12.8% in the quarter from 13.9% in the prior-year quarter.

Segment Performance

Revenues for the United States segment slipped 1% year over year at $2,028 million. Adjusted operating income for the segment decreased 3% year over year to $348 million.

Revenues of $179.3 million from the Canadian Acklands-Grainger business plunged 16% in U.S. dollars and local currency from the year-ago quarter. The segment reported an adjusted operating loss of $10.8 million, against an operating income of $4.7 million in the year-ago quarter.

Revenues from Other businesses (which include Asia, Europe and Latin America) increased 36% year over year to $482 million. The segment’s adjusted operating profit soared 68% to $24.8 million, from $14.8 million in the prior-year quarter.

GRAINGER W W Price, Consensus and EPS Surprise

Financial Position

Grainger had cash and cash equivalents of $286 million at the end of third-quarter 2016, compared with $290 million at the end of 2015. Cash flow from operations came in at $670 million for the nine-months ended Sep 30, 2016 compared with $736 million in the comparable year-ago period.

As of quarter end, Grainger’s long-term debt increased to $1,874 million, compared with $1,388 million at the end of 2015. During the quarter, the company returned $275 million in cash to its shareholders in the form of share repurchases and dividends.

Guidance

Apprehending weak demand in the fourth quarter, Grainger trimmed its sales growth guidance to 1.5–2.5% for 2016 from the previous range of 1–4%. The company also revised its earnings per share outlook to $11.40–$11.70 from $11.20–$12.20.

W.W. Grainger is a leading North-American distributor of material handling equipment, safety and security supplies, lighting and electrical products along with power and hand tools. The company also distributes pumps and plumbing supplies, cleaning and maintenance supplies, forestry and agriculture equipment, building and home inspection supplies, vehicle and fleet components as well as various aftermarket components.

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

Some better-ranked stocks in the same sector are Codexis, Inc. (NASDAQ:CDXS) , Harsco Corp. (NYSE:HSC) and Casella Waste Systems Inc. (NASDAQ:CWST) . Codexis delivered an average positive earnings surprise of 102.88% in the last four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Harsco also sports Zacks Rank #1 and has delivered an average positive earnings surprise of 89.76% in the past four quarters. Casella Waste Systems, another Zacks Rank #1 stock has an average positive earnings surprise of 90% in the past four quarters.

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