Grainger (GWW) Q3 Earnings & Revenues Miss Estimates, Up Y/Y

W.W. Grainger, Inc. (NYSE:GWW) posted third-quarter 2019 adjusted earnings per share (EPS) of $4.26, up 2% year over year. Earnings, however, missed the Zacks Consensus Estimate of $4.44, resulting in a negative surprise of 4%. 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 $4.25 in the reported quarter. The figure soared 134% from the year-ago quarter’s $1.82.

Grainger’s revenues jumped 4% to $2,947 million from the prior-year quarter’s $2,831 million. This upside was driven by an increase of 2.5 percentage point (pp) in volume. However, the revenue figure missed the Zacks Consensus Estimate of $2,950 million.

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

Operational Update

Cost of sales increased 5.5% year over year to $1,848 million. Gross profit was up 1.8% year over year to $1,099 million. Gross margin shrunk to 37.3% in the quarter from the 38.1% reported in the year-ago quarter.

Grainger’s adjusted operating income in the July-September quarter increased 2% to $339 million from the $332 million witnessed in the prior-year quarter. Adjusted operating margin contracted 20 bps year on year to 11.5% in the quarter.

Financial Position

The company had cash and cash equivalents of $286 million at the end of the third quarter, down from $517 million at the prior-year quarter end. Cash provided by operating activities decreased to $320 million for the quarter from the year-ago quarter’s $348 million.

Long-term debt was $1,918 million as of Sep 30, 2019, compared with $2,090 million as of Dec 31, 2018. The company returned $279 million to shareholders through $79 million in dividends and $200 million to buy back around 725,000 shares in the reported quarter.

Outlook

Grainger has maintained its guidance for full-year 2019. Operating margin is forecasted in the band of 12.2-13.0%. The company expects EPS of $17.10-$18.70. Gross margin is estimated between 38.1% and 38.7%, and revenue growth is projected between 2% and 5%.

Price Performance

Over the past year, Grainger’s shares have gained 10.2%, outperforming the industry’s growth of 9.2%.

Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are Plug Power Inc. (NASDAQ:PLUG) , Cintas Corporation (NASDAQ:CTAS) and Sharps Compliance Corp (NASDAQ:SMED) . While Plug Power sports a Zacks Rank #1 (Strong Buy), Cintas and Sharps Compliance carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Plug Power has a projected earnings growth rate of 2.8% for the current year. The stock has gained 139.5% so far this year.

Cintas has an estimated earnings growth rate of 12.74% for 2019. Shares of the company have rallied 58.9% year to date.

Sharps Compliance has an expected earnings growth rate of a whopping 500% for the ongoing year. The company has gained 21.5% so far this year.

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