Grainger (GWW) Q4 Earnings Lag Estimates, Revenues Beat

W.W. Grainger, Inc. (NYSE:GWW) reported fourth-quarter 2019 adjusted earnings per share (EPS) of $3.88, down 2% year over year primarily owing to a higher tax rate in the reported quarter. The bottom line also missed the Zacks Consensus Estimate of $4.03, resulting in a negative surprise of 4%.

Including one-time items, such as restructuring and other charges, earnings came in at $1.88 in the reported quarter. The figure plunged 49% from the year-ago quarter’s $3.68.

Grainger’s revenues jumped 3% to $2,847 million from the prior-year quarter figure of $2,763 million. This upside was driven by an increase of 3.5 percentage point (pp) in volume and unfavorable price impact of 0.5%. The top line surpassed the Zacks Consensus Estimate of $2,845 million.

Adjusted cost of sales increased 4% year over year to $1,766 million. Gross profit was up 1.5% year over year to $1,081 million. Gross margin contracted 38.0% in the quarter from 38.5% in the year-ago quarter.

Grainger’s adjusted operating income in the fourth quarter dipped 1% to $307 million from the $310 million in the prior-year quarter. Adjusted operating margin contracted 40 bps year over year to 10.8% in the quarter.

Financial Position

The company had cash and cash equivalents of $360 million at the end of 2019, down from $538 million at 2018 end. Cash provided by operating activities decreased to $1,042 million in the fourth quarter from the year-ago quarter figure of $1,057 million.

Long-term debt was $1,914 million as of Dec 31, 2019, compared with $2,090 million as of Dec 31, 2018. The company returned $1,028 million to shareholders through $328 million in dividends and $700 million to buy back around 2.4 million shares in 2019.

2019 Results

Grainger reported adjusted earnings per share of $17.29 in 2019, up 4% from the prior-year reported figure of $16.70. However, earnings missed the Zacks Consensus Estimate of $17.46. Including one-time items, the bottom line came in at $15.32, up 12% from $13.73 reported in 2018.

Sales rose 2.4% year over year to around $11.5 billion from the prior-year figure of $11.2 billion. The top line came in line with the Zacks Consensus Estimate.

Outlook

Grainger initiated guidance for full-year 2020. Operating margin is forecasted in the band of 11.7-12.5%. The company expects EPS of $17.75-$19.25. The mid-point of the guidance range indicates year-over-year growth of 7% from 2018. Gross margin is estimated between 37.2% and 37.8%, and revenue growth is projected between 3.5% and 6.5%.

Price Performance

Over the past year, Grainger’s shares have gained 10.9%, against the industry’s decline of 2.2%.

Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are SPX FLOW, Inc. (NYSE:FLOW) , DXP Enterprises, Inc. (NASDAQ:DXPE) and Cintas Corporation (NASDAQ:CTAS) . While SPX FLOW flaunts a Zacks Rank #1 (Strong Buy), DXP Enterprises and Cintas carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

SPX FLOW has a projected earnings growth rate of 9.1% for 2020. The company’s shares have gained 37.6% in the past year.

DXP Enterprises has an estimated earnings growth rate of 10.5% for the ongoing year. In a year’s time, the stock has appreciated 10%.

Cintas has an expected earnings growth rate of 15.6% for the current year. The stock has surged 49.5% over the past year.

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