Will Higher Expenses Weigh On Grainger's (GWW) Q3 Earnings?

W.W. Grainger, Inc. (NYSE:GWW) is scheduled to release third-quarter 2017 financial numbers before the opening bell on Oct 17. Its earnings are likely to dip year- over- year despite a rise in revenues.

In the last reported quarter as well, Grainger reported a dip of 5% in earnings to $2.74 per share while revenues edged up 2%. While earnings beat the Zacks Consensus Estimate, revenues missed the same.

The distributor of maintenance, repair, and operating (MRO) supplies; and other related products and services may be in for a disappointment in the third quarter too. The negative sentiment surrounding the stock can be gauged from the fact that the Zacks Consensus Estimate for the third quarter has decreased 1% over the past 60 days.



The stock has struggled so far this year due to multiple headwinds, underperforming the industry it belongs to. The stock has tanked 25.7%, wider than the industry’s decline of 15.6%.

Will the upcoming earnings release exert more pressure on the stock? Notably, Grainger delivered an earnings beat in three of the trailing four quarters, with an average positive earnings surprise of 1.35%. However, our proven model does not conclusively predict an earnings beat in the third quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, that is not the case here as elaborated below:

Zacks ESP: Grainger has an Earnings ESP of -0.67%. This is because the Most Accurate estimate of $2.55 is below the Zacks Consensus Estimate of $2.57. 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 #4 (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

While volumes will improve driven by price changes and marketing advertisements, Grainger’s bottom-line is likely to face the brunt of elevated expenses. Even though the company remains focused on improving gross margins and reducing cost structure in Canada, the segment continues to be challenged due to higher expenses. Further, its oil and gas and energy exposure in Canada is very high. Thus, fluctuation in oil prices will hamper the segment’s results.

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