Grainger Q3 Profit Rises, Beats View; Lowers Top End Of 2014 Outlook

(RTTNews) - Maintenance supplies distributor W.W. Grainger, Inc. (GWW) on Thursday reported a 9 percent increase in profit for the third quarter from last year, boosted mainly by sales growth in its United States segment.

Earnings per share for the quarter beat analysts' estimates by a penny. Looking ahead, the company lowered the top end its sales and earnings per share guidance for fiscal 2014.

Jim Ryan, Chairman, President and Chief Executive Officer of Grainger said, "Strong volume growth and positive operating leverage in the U.S. business were the primary drivers of our results. We were encouraged by better top line growth in Canada this quarter, but margins remain under pressure due to currency and additional investments."

Net earnings attributable to the company for the third quarter was $230.32 million or $3.30 per share, up from $210.79 million or $2.95 per share in the prior-year period.

On average, 20 analysts polled by Thomson Reuters expected the company to report earnings of $3.29 per share for the quarter. Analysts' estimates typically exclude special items.

Net sales for the quarter grew 7 percent to $2.56 billion from $2.40 billion in the same period last year. Analysts had a consensus revenue estimate of $2.57 billion for the quarter.

The 7 percent sales increase in the latest quarter consisted of 2 percentage points from acquisitions, net of dispositions, and a 1 percentage point reduction from unfavorable foreign exchange.

Excluding acquisitions and foreign exchange, organic sales increased 6 percent, driven by 6 percentage points from volume and 1 percentage point from price. These were partially offset by a 1 percentage point decline from lower sales of seasonal products.

The company's sales for the U.S. segment increased 7 percent from last year to $2.05 billion, with strong sales growth in the Heavy and Light Manufacturing as well as Commercial, Retail and Natural Resources customer end markets.

In Canada, sales rose 3 percent in U.S. dollars to $278.27 million and also increased 8 percent in local currency, mainly due to higher volume.

Sales for the Other Businesses, which includes operations primarily in Asia, Europe and Latin America, increased 16 percent to $300.76 million.

The company's gross profit margin for the quarter decreased 0.8 percentage point year-over-year to 43.0 percent, with more than half the decline due to unfavorable mix from the recently acquired businesses. The remainder of the decline was due to faster growth with lower gross margin customers and lower gross profit margins outside the United States.

Looking ahead to fiscal 2014, Grainger now forecasts sales growth of 5.0 to 5.5 percent and earnings per share of $12.20 to $12.30, excluding the $0.15 per share charge for the Fabory retirement plan transition in the second quarter of 2014.

Earlier, the company forecast full-year sales growth of 5 to 7 percent, and earnings per share of $12.20 to $12.60.

The previous guidance assumed an effective tax rate of 37.5 to 37.8 percent. The company is now forecasting an effective tax rate of 38.3 percent, due to a higher proportion of earnings from the U.S. segment, reducing earnings for the full year by about $0.12 per share.

Street expects the company to report earnings of $12.45 per share for the year on revenues of $10.00 billion.

Ryan said, "Outside of North America, we were disappointed with the performance of several multichannel businesses and are committed to improving or exiting those operations. We are very excited about the continued success of our single channel businesses in Japan and the United States, and we are evaluating and testing additional markets for expansion of this model."

GWW is currently trading at $234.98, down $4.18 or 1.75 percent on a volume of 243,393 shares.