Grainger (GWW) Earnings Trump, Sales Trail Estimates In Q1

W.W. Grainger, Inc. (NYSE:GWW) posted first-quarter 2019 adjusted earnings per share (EPS) of $4.51, up 8% year over year. Further, earnings beat the Zacks Consensus Estimate of $4.42 by 2%. Growth in operating earnings and lower average shares outstanding drove Grainger’s quarterly performance.

Including one-time items, such as restructuring and other charges, earnings came in at $4.48 in the reported quarter. The figure improved 10% from $4.07 recorded in the year-ago quarter.

Grainger reported revenues of $2,799 million, up 1.2% from the prior-year quarter’s figure of $2,766 million. This upside was driven by an increase of 3 percentage point (pp) in volume and 1.5 pp increase in price. However, revenues missed the Zacks Consensus Estimate of $2,891 million.

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

Operational Update

Adjusted cost of sales increased 1.7% year over year to $1,703 million. Adjusted gross profit inched up to $1,096 million from $1,092 million recorded in the year-earlier quarter. Adjusted gross profit margin was 39.2% compared to the 39.5% reported in the year-ago quarter.

Grainger’s adjusted operating income in the first quarter increased 6.4% to $365 million from $343 million witnessed in the prior-year quarter. Adjusted operating margin expanded 65 bps to 13% in the quarter from 12.4% in the year-earlier quarter.

Financial Position

The company had cash and cash equivalents of $392 million at the end of first-quarter 2019 compared with $538 million at the end of 2018. Cash provided by operating activities fell to $127 million for the quarter compared with $147 million reported in the prior-year quarter.

Long-term debt was $2,077 million as of Mar 31, 2019, compared with $2,090 million as of Dec 31, 2018. The company returned $211 million to shareholders through $76 million in dividends and $135 million to buy back around 457,000 shares in the first quarter.

Outlook

In the Jan-Mar quarter, Grainger maintained its guidance for full-year 2019. Net sales growth is expected in the range of 4-8.5% and operating margin is forecast in the band of 12.2%-13%. 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 estimates 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 7%, compared with the industry’s growth of 6.6%.

Zacks Rank and Stocks to Consider

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

A few better-ranked stocks in the Industrial Products sector are DMC Global Inc. (NASDAQ:BOOM) , Lawson Products, Inc. (NASDAQ:LAWS) and DXP Enterprises, Inc. (NASDAQ:DXPE) , each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

DMC Global has an estimated earnings growth rate of 77.3% for the ongoing year. The company’s shares have rallied 129.8%, in the past year.

Lawson Products has an expected earnings growth rate of 102.5% for the current year. The stock has appreciated 34% in a year’s time.

DXP Enterprises has an expected earnings growth rate of 21.6% for 2019. The company’s shares have gained 22%, over the past year.

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