Grainger's October Sales Moderate - Analyst Blog

W.W. Grainger Inc. (GWW) reported October sales growth of 11% year over year. Though remaining positive, growth in October moderated from the preceding months, plunging to the lowest point thus far in this fiscal year. Monthly sales have gradually dropped from the high figures of July, August and September that saw sales climbing 21%, 20% and 18%, respectively.

We believe the results in October 2010 suffered from one less selling day than the prior-year comparable period. As a result, the fourth quarter of 2010 will have 63 selling days versus 64 selling days in 2009.

Acquisitions made by Grainger contributed one percentage point to the growth with favorable foreign exchange adding another percentage point. Excluding the impacts of acquisitions and foreign currency exchange rates, daily sales increased 9% during the month.

Geographically, daily sales in the United States rose 8%, while Canada saw a jump of 20% (16% 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, rose sharply by 48%.

The third quarter 2010 operating earnings of Grainger were $1.99 per share versus $1.51 per share recorded in the year-ago quarter. The company expects earnings per share for 2010 in the range of $6.40 to $6.70.

The Zacks Consensus Estimates for fourth-quarter 2010, fiscal year 2010 and fiscal year 2011 are $1.65 per share, $6.66 per share and $7.61 per share, respectively.

Grainger continues to reap the benefits from acquired businesses and favorable foreign exchange rates, thus aiding sales growth. Accordingly, on the third quarter earnings call, the company raised its sales growth guidance for fiscal 2010 to a band of 14% to 15% from 12% to 14% earlier.

Grainger currently retains a Zacks #2 Rank (short-term Buy rating). We also maintain an Outperform rating on the stock. The company's net income margin outdid its major peers', Applied Industrial Technologies Inc. (AIT) and WESCO International Inc. (WCC), in the trailing twelve months.

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.