W.W. Grainger, Inc. (GWW) reported a 7% year-over-year increase in sales in Oct 2013, nearly reaching the year's highest growth rate of 8% reported in Jan and April. The increase was slightly above the 6% rise recorded in Oct 2012.
Oct 2013 had 23 selling days, same as the year before. On an organic basis, sales improved 5% driven by volume growth (6 percentage points), but was partially offset by a decline of 1 percentage point from sales of hurricane-related products in Oct 2012.
In October last year, Grainger supplied hurricane-related products to prepare for Hurricane Sandy in the northeast United States. Apart from this, contribution from acquisitions had a positive effect of 3 percentage points, partly offset by a 1 percentage point decline from foreign exchange.
Geographically, daily sales in the U.S. rose 10%, aided by higher volume (7 percentage points), and acquisitions (4 percentage points), partially offset by narrowed sales of hurricane-related products in the prior year.
Light manufacturing sales were up in low double digits while heavy manufacturing, commercial and retail sales were up in high single digits. It was followed by low single-digit gains in Government and Natural Resources. Sales to resellers were flat, while sales to contractors were down in low single-digits.
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Sales to the Government sector increased overall as daily sales to state and local governments, which account for more than 70% of government sales, grew in the low-double digit. On the other hand, daily sales for the federal government business declined in high teens compared with the prior year. The U.S. government shutdown was a deterrent in October.
Daily sales in Canada declined 4% in the U.S. currency, but it increased 1% in local currency due to rise in volume. Growth was driven by strength in oil & gas and light manufacturing end markets.
Daily sales at Grainger’s other businesses, which include operations in Asia, Europe and Latin America, climbed 2% as higher volume and favorable pricing (9%) were offset by negative foreign currency translation effect (7%).
According to Grainger, after normalizing for acquisitions in 2013 and the hurricane in 2012, daily sales growth in the U.S in November is trending in line with the October level. However, sales are reportedly lower than October outside U.S.
Grainger’s revenues in the third quarter were $2,398 million, up 5% from $2,281 million in the year-ago quarter. Sales improved on the back of volume growth (4 percentage points) and acquisitions (1 percentage point), offset by a negative currency impact of 1 percentage point. On a daily basis, sales increased 4%.
Citing continuing headwinds from a softer global economy and stronger U.S. dollar, Grainger narrowed its EPS guidance to the range of $11.45-$11.65 per share for fiscal 2013, from the prior guidance of $11.40-$12.00 per share. Grainger revised its sales growth guidance to a new range of 5% to 6% against the prior guidance of 5% to 8%.
The company expects long-term benefits is expected to benefit in the long term from its sustained focus on expanding sales force, product offerings and strengthening businesses across all operating regions, particularly Asia and Latin America, as well as from continued investment in e-commerce — its most profitable channel.
Furthermore, Grainger’s sound balance sheet, low debt level and cash flow allow the company to invest in growth opportunities, raise dividends and reinvest capital through share repurchases. The company has been rewarding shareholders with consistent dividend hikes over the last 42 years, a record only 3% of the S&P 500 companies hold.
However, the recent slowdown in sales is a point of concern. Throughout 2013, Grainger’s daily sale growth rate has ranged from 3% (March) to 8% (January, April, October). Its incremental growth will weigh on margins in the short term. Sequestration remains a headwind for the federal government business, particularly in the Military business.
Lake Forest, IL-based Grainger is a leading North American distributor of material handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, forestry and agriculture equipment, building and home inspection supplies, vehicle and fleet components, and various aftermarket components.
Grainger currently carries a short-term Zacks Rank #4 (Sell). Favorable options in the industry include Xylem Inc. (XYL) with a Zacks Rank #1 (Strong Buy) and Graham Corp. (GHM) and Hudson Technologies Inc. (HDSN) both holding a Zacks Rank #2 (Buy).
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