Grainger Rides On Improving Markets & Growing E-commerce

 | Jun 17, 2018 09:21PM ET

We issued an updated research report on W.W. Grainger, Inc. (NYSE:GWW) on Jun 15. The company is expected to benefit from price deflation, continuous investments in e-commerce and digital capabilities, focus on strengthening large and mid-sized customers’ base as well as the latest tax reform.
Upbeat Guidance
Grainger expects sales growth of 5-8% and earnings per share between $14.30 and $15.30. It also anticipates operating earnings growth of 6-14% and EPS growth of 25-33% for the year. The guidance is backed by lower price headwind than previously expected. It is also aided by improved price mix and better currency translation.
COGS deflation was way more favorable in the first quarter and the company expects it to continue this year. Grainger expects price mix to improve and 50 basis points of COGS deflation for the year, driven by its internal product cost initiatives. As a result of the U.S. tax reform,
The Zacks Consensus Estimate for earnings for fiscal 2018 is pegged at $14.96, reflecting year-over-year growth of 30.54%. The Zacks Consensus Estimate for revenues is at $11.17 billion, projecting year-over-year growth of 7.14%.
Growth in E-commerce to Fuel Revenues
Grainger’s e-commerce sales, representing around 53% of total sales in the first quarter, increased around 18% year over year. The increase can primarily be attributed to the launch of Grainger.com and other electronic purchasing platforms in the United States as well as across all single channel online businesses. The company is focused on improving the end-to-end customer experience by making investments in e-commerce and digital capabilities, and executing continuous improvement initiatives within its supply chain. Notably, it intends to continue reducing cost base.
Improving Markets to Aid Growth
Grainger generates revenues from the distribution of MRO (Maintenance, Repair and Operating) supplies and products and related services. In the United States, business investment and exports are two major indicators of MRO spending. Business investment is likely to remain strong in 2018, supported by expanding global markets, lower capital costs and an improving regulatory environment. Further, exports and business nonresidential investment are expected to improve.
Further, Grainger will continue its efforts to strengthen relationships with both large and mid-sized customers. The company has been witnessing increasing volumes across all customer groups lately. Large customer volume in the United States increased 7% in the first quarter from the prior-year quarter and also surpassed management’s expectations. Mid-size customer volume also exceeded expectations with 30% growth in the quarter.
Solid Estimate Revision, Price Performance
Positive estimate revisions reflect optimism in the company's potential, as earnings growth is often an indication of robust prospects (and stock price gains) ahead. Estimates for Grainger for both 2018 and 2019 have moved up 5% and 4% respectively, in the past 60 days, reflecting analysts' bullish outlook.