Summary
W.W. Grainger, Inc. reported third-quarter 2016 results showing a modest 3% increase in net sales to $2.6 billion, primarily driven by the acquisition of Cromwell and growth in online businesses. However, profitability faced pressure, with net earnings attributable to the company decreasing by 3% to $186 million. This decline was largely due to a 2% decrease in gross profit, impacted by unfavorable customer mix and price deflation in the United States, as well as cost inflation in Canada. Despite operational efficiencies leading to a 1% decrease in operating expenses, the reduced gross profit resulted in a 5% drop in operating earnings. The company's outlook for 2016 was revised downwards, reflecting anticipated continued gross profit pressure. While diluted EPS for the quarter saw a 4% increase to $3.05, this was primarily a result of fewer shares outstanding due to share repurchases, rather than an increase in underlying earnings. Investors should monitor the impact of ongoing price deflation and the company's ability to manage costs in a challenging economic environment.
Financial Highlights
53 data points| Revenue | $2.60B |
| Cost of Revenue | $1.56B |
| Gross Profit | $1.04B |
| SG&A Expenses | $717.16M |
| Operating Income | $322.59M |
| Interest Expense | $18.02M |
| Net Income | $185.87M |
| EPS (Basic) | $3.07 |
| EPS (Diluted) | $3.05 |
| Shares Outstanding (Basic) | 60.02M |
| Shares Outstanding (Diluted) | 60.42M |
Key Highlights
- 1Net sales increased by 3% to $2,596 million for the third quarter of 2016, compared to $2,533 million in the prior year, largely due to the Cromwell acquisition and growth in online channels.
- 2Gross profit decreased by 2% to $1,040 million, with the gross profit margin declining by 1.9 percentage points to 40.0%, attributed to unfavorable customer mix and price deflation in the U.S. and cost inflation in Canada.
- 3Operating earnings decreased by 5% to $323 million, reflecting the impact of lower gross profit, partially offset by a 1% reduction in operating expenses.
- 4Net earnings attributable to W.W. Grainger, Inc. decreased by 3% to $186 million.
- 5Diluted earnings per share increased by 4% to $3.05, driven by a reduction in outstanding shares, though underlying earnings were lower.
- 6The company revised its 2016 sales growth guidance upwards to 1.5%-2.5% and EPS guidance to $11.40-$11.70, citing modest Q4 sales growth expectations and continued gross profit pressure.
- 7eCommerce sales continued to grow, increasing by 16% to $1,242 million and representing 48% of total sales for the third quarter.