W.W. Grainger, Inc. (GWW) is set to release its fourth-quarter 2014 results before the opening bell on Jan 26. In the last quarter, the company delivered a positive surprise of 1%. Let’s see how things are shaping up for this announcement.
Factors to be Considered
Grainger is focused on expanding its product offerings, sales force as well as the share of its private label products, which will likely lead to long-term growth. Also, the company continues to invest in eCommerce expecting an increase in the number of customers utilizing this channel and its percentage of overall sales.
Additionally, Grainger continues to grow through acquisitions. Its three recently acquired businesses in the U.S., Techni-Tool, E&R Industrial Sales and Safety Solutions, are outperforming their sales and earnings projections and the company remains on track with its integration plans.
Grainger projects its sales to grow in the range of 4% to 5.5% and expects earnings per share of $2.75 to $2.85 in the fourth quarter of 2014. For fiscal 2014, the company expects sales to grow in the 5% to 5.5% range, while earnings per share are expected to be in the band of $12.20 to $12.30. Grainger's operating margin in 2014 is expected to be 14.3%, excluding restructuring charges and unusual items. For 2015, Grainger anticipates sales growth of 5% to 9% and expects earnings per share in the range of $12.90 to $13.80.
Furthermore, Grainger will benefit from increased investment in its single channel online businesses. Revenues for these businesses, which include MonotaRO in Japan and Zoro in the U.S., Canada and Europe, are expected to increase 33% to reach $800 million in 2015, accounting for 2 to 3 percentage points of the company’s total revenue growth. Backed by the strong growth opportunities in these businesses, Grainger plans to invest aggressively in the development of the single channel online model in Europe, signifying approximately $0.20 to $0.25 per share in costs for 2015.
In Europe, Grainger is planning for restructuring at Fabory, its multichannel business headquartered in the Netherlands. Fabory is expected to generate $280 million in sales in 2014. The company will cut down 10—15% of the costs through branch rationalization and internal efficiencies over the next six to twelve months. Fabory is expected to breakeven in 2015 and post profit thereafter in 2016. Grainger considers Europe as an attractive market considering its size, economic maturity and market dynamics.
As regards its longer-term financial objectives, Grainger targets operating margins in the range of 16 to 17% by 2019 backed by organic sales growth in the high-single digits and long-term operating margin expansion averaging 30 to 60 basis points per year.
However, Grainger’s business in Canada continues to fight a sluggish macroeconomic environment and unfavorable currency exchange rates. Even though sales growth has improved sequentially in Canada in the third quarter of 2014, increased investments in supply chain and IT will continue to weigh on margins going forward. Moreover, the recent plunge in oil prices will hamper the segment’s results.
Earnings Whispers
Our proven model does not conclusively show that Grainger is likely to beat earnings estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy) or at least 2 (Buy) or 3 (Hold) for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: The Earnings ESP for Grainger is 0.00%. This is because the Most Accurate estimate of $2.83 is in line with the Zacks Consensus Estimate.
Zacks Rank: Grainger’s Zacks Rank #3 when combined with 0.00% ESP, makes surprise prediction difficult. We caution investors against stocks with a Zacks Rank #4 and #5 (Sell-rated stocks) going into the earnings announcement.
Stocks That Warrant a Look
Here are some other companies you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:
Century Aluminum Co. (CENX) has an earnings ESP of +7.81% and a Zacks Rank #1 (Strong Buy). It is expected to report results on Feb 19.
Noranda Aluminum Holding Corp. (NOR) has an earnings ESP of +50.00% and a Zacks Rank #1. It is expected to report results on Feb 18.
Brady Corp. (BRC) has an earnings ESP of +3.23% and a Zacks Rank #2 (Buy). It is slated to report results on Feb 19.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Be the first to comment