Grainger (GWW) To Post Q2 Earnings: Stock To Disappoint?

W.W. Grainger, Inc. (NYSE:GWW) is scheduled to release second-quarter 2017 financial numbers before the opening bell on Jul 19. In first-quarter 2017, Grainger posted a negative earnings surprise of 4.32%.

Let’s see how things are shaping up for this announcement.

Earnings Whispers

Our proven model does not conclusively show that Grainger will beat on earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below:

Zacks ESP: Grainger has an Earnings ESP of -2.29%. This is because the Most Accurate estimate of $2.56 comes below the Zacks Consensus Estimate of $2.62. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Grainger’s Zacks Rank #5 (Strong Sell) further lowers the predictive power of ESP. It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Factors Likely at Play

We expect Grainger’s results to be affected by acceleration in its pricing actions. The company decided to accelerate its pricing actions this year instead of 2018 to gain new customers and grow with existing customers. The price acceleration is a headwind to its 2017 and 2018 gross margins.

Grainger, in April, lowered its sales and earnings per share guidance for 2017 due to unfavorable impact of strategic pricing actions in the U.S. The company now sees sales growth of 1–4%, down from the earlier guidance of 2–6%. It also expects earnings per share to be in the range of $10.00–$11.30 compared to the previous view of $11.30–$12.40.

Further, the company’s Canada segment continues to be challenged due to escalating expenses. Fluctuation in oil prices are also expected to hamper this segment’s results. Moreover, Grainger’s bottom line is likely to face the brunt of elevated expenses.

Share Price Performance

Year to date, Grainger has underperformed the Zacks classified Industrial Services sub-industry with respect to price performance. The stock lost around 26.8%, while the industry saw a decline of 22.2% over the same time frame.

Stocks That Warrant a Look

Here are some stocks you may want to consider, as according to our model they have the right combination of elements to post an earnings beat this quarter.

AGCO Corporation (NYSE:AGCO) , with an Earnings ESP of +0.97% and a Zacks Rank #1, is slated to release its quarterly numbers on Jul 27. You can see the complete list of today’s Zacks #1 Rank stocks here.

Belden Inc. (NYSE:BDC) , with an Earnings ESP of +0.83% and a Zacks Rank #2, is scheduled to report results on Aug 2.

Avery Dennison Corporation (NYSE:AVY) , with an Earnings ESP of +1.68% and a Zacks Rank #2, is set to report quarterly numbers on Jul 25.

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