Grainger (GWW) Beats Q4 Earnings, Misses Sales Estimates

W.W. Grainger, Inc. (NYSE:GWW) posted fourth-quarter 2018 adjusted earnings per share (EPS) of $3.96, up 35% year over year. Further, earnings beat the Zacks Consensus Estimate of $3.60 by 10%. Higher sales, operating expense leverage and a lower tax rate drove Grainger’s fourth-quarter performance.

Including one-time items, such as restructuring and other charges, earnings came in at $3.68 in the reported quarter. The figure rallied 40% from $2.63 recorded in the year-ago quarter.

Grainger reported revenues of $2,763 million, up 5% from the prior-year quarter’s figure of $2,633 million. The upside was driven by an increase of 4 percentage point (pp) from volume growth and 1 pp increase in price, partially offset by 1 pp from holiday timing. However, revenues missed the Zacks Consensus Estimate of $2,793 million.

2018 Results

In 2018, the company reported adjusted EPS of $16.70, up 46% from $11.46 in the year-ago quarter.

Grainger reported revenues of $11,221 million in 2018, up around 7.6% from $10,425 million in 2017.

W.W. Grainger, Inc. Price, Consensus and EPS Surprise

Operational Update

Adjusted cost of sales increased 6% year over year to $1,698 million. Adjusted gross profit increased 3% to $1,065 million from $1,032 million recorded in the year-earlier quarter. Gross margin shrunk 50 basis points (bps) to 39%.

Grainger’s adjusted operating income in the fourth-quarter increased 10% to $310 million from $281 million in the prior-year quarter. Adjusted operating margin expanded 50 bps to 11.2% in the quarter from 10.7% in the year-earlier quarter.

Financial Position

The company had cash and cash equivalents of $538 million at the end of the fiscal 2018 compared with $327 million at the end of 2017. Cash provided by operating activities fell to $314 million during the quarter, compared with $336 million reported in the prior-year quarter.

Long-term debt was $2.1 billion as of Dec 31, 2018, compared with $2.2 billion as of Dec 31, 2017. The company returned $741 million in cash to shareholders through $316 million in dividends and $425 million to buy back 1.4 million shares in 2018.

Outlook

For 2019, Grainger expects net sales growth of 4% -8.5%. The company expects EPS in the band of $17.10-$18.70. Gross profit margin is estimated between 38.1% and 38.7%. The company also expects capex in the range of $300-$350 million.

Price Performance

In the past year, Grainger has outperformed the industry with respect to price performance. The stock has gained around 3.7%, against the industry’s fall of 30.8%.

Zacks Rank & Key Picks

Grainger carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector include Axon Enterprise, Inc (NASDAQ:AAXN) , Bemis Company, Inc (NYSE:BMS) and EnerSys (NYSE:ENS) . While Axon flaunts a Zacks Rank #1 (Strong Buy), Bemis and EnerSys carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Axon has an expected earnings growth rate of 14.5% for 2019. The company’s shares have rallied 74.7% in the past year.

Bemis has an expected earnings growth rate of 7.4% for 2019. The stock has gained 1.5% in a year’s time.

EnerSys has an expected earnings growth rate of 9.5% for 2019. Its shares have climbed 13.5% in the past year.

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