Grainger Sells Highsmith Brand - Analyst Blog

W.W. Grainger Inc. (GWW) has announced that it is divesting all of the assets of library supplies provider Highsmith to Madison, WI-based library supplier DEMCO Inc. for an undisclosed amount.

The Highsmith brand was a part of Grainger's U.S. Specialty Brands portfolio. Grainger's Specialty Brands provide targeted customer segments with products and services specific to their work or industries.

The company is undergoing a strategic review of the U.S. Specialty Brands portfolio, and in addition to Highsmith, Grainger is contemplating the possible divestiture of four additional brands viz. Professional Equipment, Construction Book Express, McFeely's and Rand.

The brands under contention along with Highsmith contribute a mere 1% of total Grainger revenue. Grainger plans to invest in the remaining Specialty Brands portfolio including: Lab Safety Supply, Imperial, Gempler's, Ben Meadows and AW Direct, and explore strategic acquisitions to grow the portfolio.

Highsmith, a direct marketing leader in the library equipment, furniture and supplies market, has been part of Grainger for two years. It was acquired by Grainger in July 2008 for $27.5 million in cash and $6.1 million in assumed liabilities. Highsmith had generated sales of $64 million in 2007.

The divestiture will not have a material impact on Grainger's revenues and instead will help it focus on maintaining specialized brands in growing markets that are strategic to its core offering and leverage Grainger's distribution capabilities.

Grainger recently reported November sales growth of 14% year over year. Thus far, in December 2010, the company stated that the daily year-over-year percentage growth is tracking consistently with the 14% growth rate recorded in November with a higher mix of sales for products related to the oil spill clean-up than observed in November.

For the fiscal fourth quarter, the company expects EPS in a band $1.49 to $1.69. Grainger forecasts fiscal 2010 EPS in the range of $6.50 to $6.70 and for 2011 in the range of $7.15 to $7.90. The Zacks Consensus Estimates for the fourth quarter, fiscal 2010 and fiscal 2011 currently stand at $1.65, $6.66 and $7.66, respectively, all within the company's targeted ranges.

Grainger remains focused on expanding its product offering and has the financial wherewithal to further invest in growth opportunities, increase dividends and reinvest capital through share repurchases. Gradually improving economic activity, market share gains, benefits from growth investments, share repurchases and acquisition accretion should lead to strong earnings growth in 2010 and 2011. We maintain an Outperform rating on the stock. The company retains a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Based in Lake Forest, Illinois, Grainger is a distributor of facilities maintenance and other related products and services. The company distributes 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 competes with Applied Industrial Technologies Inc. (AIT) and WESCO International Inc. (WCC).

 
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