Grainger July Sales Ride High - Analyst Blog

July sales at W.W. Grainger Inc. (GWW) jumped 21%, the highest growth recorded by the company so far in fiscal 2010, driven by sales of items related to the oil spill clean-up in the Gulf of Mexico.

Acquisitions contributed 5 percentage points to the growth with favorable foreign exchange adding 1 percentage point. Excluding the impacts of acquisitions and foreign currency exchange rates, daily sales increased 15% during the month.

Geographically, daily sales in the United States rose 17%, also the highest for the company so far in 2010. Canada saw a 21% increase or (13% increase in local currency). Daily sales for the company's Other Businesses segment, which includes operations in Japan, Mexico, India, Puerto Rico, China and Panama, shot up 180%.

Monthly sales had dipped in most of fiscal 2009, primarily due to weak demand across all customer end-markets and regions. Results started showing an improvement with November 2009 posting a 2% increase. Since then Grainger has seen its monthly sales increase in the double digits.

Increased sales related to the clean-up of the oil spill in the Gulf of Mexico also benefited Grainger's recently-reported quarter. Grainger's second-quarter earnings per share (EPS) of $1.65 exceeded the Zacks Consensus Estimate of $1.50 and the year-ago earnings of $1.21. Improved results were also driven by increased sales in the United States and Canada, as well as a majority of its international operations.

At its second-quarter earnings call, Grainger raised its fiscal 2010 sales growth guidance to a range of 12% to 14%, up from its previous range of 9% to 12%. The Zacks Consensus Estimate stands at $7.04 million or 13% annualized growth, at the mid-point of the company's guided range.

Grainger's EPS guidance is now $6.10 to $6.40, up from its previously-expected range of $5.70 to $6.10. The guidance does not include a benefit of 34 cents related to the change in the employee paid time off policy. The Zacks Consensus Estimate is $6.39, near the upper-end of management's guidance.

Grainger expects the benefits from the oil spill clean-up to continue in the near term, but at a reduced rate from what was experienced in July.

The benefit oil spill clean-up related products does not come as a surprise, and we expect it to boost results in the near future. Therefore, we maintain our Zacks #2 Rank ('Buy') on Grainger. We believe a gradually-improving economy, market share gains and benefits from growth investments, share repurchases and accretion from acquisitions should lead to earnings growth going forward. However, given the uncertainty regarding the recovery, we maintain our long-term "Neutral" rating on Grainger.

Illinois-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. The company’s services comprise inventory management and energy efficiency solutions.

 
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