Grainger's Earnings Beat in 1Q - Analyst Blog
April 16 2013 - 7:46AM
Zacks
W.W. Grainger,
Inc. (GWW) reported earnings per share of $2.94 for the
first quarter of 2013, up 14% year over year from $2.57 and ahead
of the Zacks Consensus Estimate of $2.73.
Operational Update
Revenues in the quarter were $2,280 million, up 4% from $2193
million in the year-ago period but missed the Zacks Consensus
Estimate of $2,300 million. On a daily basis, sales improved 6% on
volume growth, pricing, acquisitions and increase in sales from
seasonal products, offset by a negative currency impact. On a daily
basis, sales increased 8% in January, 6% in February and 3% in
March.
Daily sales growth deteriorated in March compared with the prior
months due to the timing of the Easter Holiday, which reduced daily
sales growth by 2 percentage points. Uncertainty in the United
States surrounding sequestration also led to a decline in sales to
the government end market during the month.
Operating income in the quarter increased 13% to $343 million,
primarily driven by higher sales volume, improved gross margins and
operating expense leverage as expenses grew at a slower rate than
sales. Operating margin expanded 120 basis points to 15.1% in the
quarter.
Segment Performance
Revenues from the United States segment increased 4% year over year
to $1.77 billion, driven by favorable volume, price growth and
acquisitions. Solid growth was witnessed in the light and heavy
manufacturing, natural resources, commercial and contractor end
markets. On a daily basis, sales improved 7% in January and
February and 4% in March. Operating income rose 11% to $331
million, driven by higher sales, higher margins and positive
expense leverage.
Revenues from the Acklands-Grainger business in Canada climbed 4%
to $283 million, led by strong growth in the commercial,
construction, oil and gas, forestry, and light manufacturing end
markets. On a daily basis, segment sales improved 8% in January and
February and 3% in March. Operating income in Canada was up 11% to
$32.8 million, helped by higher sales and positive expense
leverage.
Revenues from Other businesses (which include Asia, Europe and
Latin America) increased to $247.9 million from $238.9 million in
the year-ago quarter, driven by strong growth in Japan and
acquisitions in Brazil. The segment reported an operating profit of
$8.2 million, down from $10.7 million in the year-ago quarter.
Operating losses in Brazil and lower earnings in some of the
smaller businesses in Asia and Latin America led to the decline,
somewhat offset by strong earnings growth in Japan and operating
earnings growth in Europe.
Financial Position
Grainger had cash and cash equivalents of $485 million as of Mar
31, 2013 compared with $452 as of Dec 31, 2012. Long-term debt
stood at $454.5 million as of Mar 31, 2013, compared with $467
million as of Dec 31, 2012.
The company generated cash flow from operating activities of $176.4
million during the quarter, up from $106 million in the prior-year
quarter. Grainger expended $43 million in capital expenditures
during the quarter compared with $41 million in the prior-year
quarter. Grainger paid dividends worth $57 million in the quarter
and spent $70 million to buy back 3.15 million shares. The company
has approximately 5 million shares remaining in its share
repurchase authorization.
Outlook
Grainger reaffirmed its EPS guidance in the range of $11.30-$12.00
per share for fiscal 2013, up from the prior guidance of
$10.85-$12.00 per share. Grainger, however, increased its sales
growth guidance to a new range of 5% to 9%, up from the prior 3% to
9%.
Our Take
Grainger continues to expand its product portfolio and expects to
increase its product count from the current 413,000 to 500,000
products by 2015. The company has historically seen annual growth
of approximately 2% on sales from products added through the
program. Additionally, it focuses on expansion programs for
strengthening its businesses across its operating regions, mainly
in Asia and Latin America.
Grainger also continues to invest in e-commerce, as it is
reportedly growing two fold compared to other channels and is
deemed to be its most profitable channel. Grainger’s target is to
increase e-commerce sales from the current 30% to 50% by 2015. This
channel also carries higher margins as it requires lower selling,
general and administrative costs.
However, the recent slowdown in sales is a concern. Grainger has an
incremental $160 million of growth spending in the pipeline for
2013. Even though these initiatives will lead to additional share
gains in the future, it will weigh on margins in the short
term.
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 retains a Zacks
Rank #3 (Hold).
Grainger’s peers such as
Codexis, Inc. (CDXS), Hudson Technologies
Inc. (HDSN), and TMS International Corp.
(TMS), are yet to announce their first quarter earnings
results.
CODEXIS INC (CDXS): Free Stock Analysis Report
GRAINGER W W (GWW): Free Stock Analysis Report
TMS INTL CP-A (TMS): Free Stock Analysis Report
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