W.W. Grainger, Inc. (GWW) reported fourth-quarter 2014 adjusted earnings per share of $2.80, up 8% from $2.59 per share in the year-ago quarter. However, earnings missed the Zacks Consensus Estimate of $2.83.
The company’s reported earnings came in at $2.14 per share, decreasing 3% from $2.20 a share in the year-ago quarter.
Operational Update
Revenues in the quarter were $2.51 billion, up 6% from $2.40 billion in the year-ago quarter and ahead of the Zacks Consensus Estimate of $2.50 billion. There were 64 selling days in the fourth quarter, same as the prior-year quarter.
The 6% sales growth for the quarter was led by an increase in volumes (7 percentage points), a 1 percentage point effect from pricing and another percentage point from sales of Ebola related safety products, partly offset by a 2 percentage point decline from unfavorable currency translation and a 1 percentage point unfavorable variance from lapping an additional month of sales from the E&R Industrial, Inc. acquisition.
Cost of sales increased 6% year over year to $1.46 billion. Gross profit increased 4.8% year over year to $1.05 billion. Gross margin remained flat year over year at 42%. Grainger’s adjusted operating income in the quarter increased 9% to $318 million from $292 million in the prior-year quarter. Operating margin expanded 40 basis points to 12.7% in the quarter.
Segment Performance
Revenues from the United States segment increased 6% year over year to $2 billion. Adjusted operating income for the segment rose 29% year over year to $339 million.
Revenues from the Canadian Acklands-Grainger business increased 3% (11% in local currency) to $279 million from $272 million in the year ago quarter. Adjusted operating income in Canada, however, plunged 27% year over year to $19.6 million.
Revenues from Other businesses (which include Asia, Europe and Latin America) increased 13% year over year to $307.6 million. The segment reported an adjusted operating profit of $0.4 million, down significantly from $3.1 million in the year-ago quarter.
Financial Position
Grainger had cash and cash equivalents of $226.6 million at the end of 2014 compared with $430.6 million at 2013 end. Cash decreased primarily due to share repurchases, dividends and investments in property, buildings and equipment. The company generated cash flow from operations of $959.8 million in 2014 compared with $986.5 million in 2013.
Long-term debt was $404.5 million as of Dec 31, 2014, down from $445.5 million as of Dec 31, 2013.
Grainger bought back around 2.1 million shares of stock for $525 million in 2014 and has 8.5 million shares remaining under the current repurchase authorization. Dividends paid in 2014 totaled $291 million. For the year, Grainger returned $816 million in cash to shareholders in the form of dividends and share repurchases.
Full-Year 2014 Performance
Grainger posted adjusted earnings of $12.26 per share for 2014, increased 6% from $11.52 a share in 2013. Earnings, however, missed of the Zacks Consensus Estimate of $12.29. Including special items, earnings were $11.45 per share for the year compared with $11.13 in 2013.
Revenues for the full year also increased 6% year over year to $10 billion from $9.4 billion in 2013. Revenues came in line with the Zacks Consensus Estimate.
Guidance
Grainger updated its 2015 guidance and now expects sales growth of 3–7% and earnings per share in the range of $12.60 to $13.60, as against its prior projection of earnings in the range of $12.90 to $13.80 on sales growth of 5–9%. The lowered guidance reflects the effect of foreign currency translation due to further weakening of the Canadian and Japanese currencies as well as a soft macroeconomic backdrop in Canada.
W.W. 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 Zacks Rank #3 (Hold).
Some better-ranked stocks in the sector include Abengoa SA (ABGB), Adept Technology Inc. (ADEP) and Belden Inc. (BDC). All three stocks carry a Zacks Rank #1 (Strong Buy).
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