W.W. Grainger Inc. (GWW) reported November sales growth of 15% year over year, continuing its double-digit run so far in the year.
Acquisitions added 5 percentage points to growth mainly due to the Fabory business acquired in August. Organic sales increased 10% with higher volume contributing 10 percentage points and pricing adding 2 percentage points. However, a 2-percentage point dip from oil spill related sales in the Gulf of Mexico in 2010 was a partial offset.
Geographically, daily sales in the United States increased 9%. Heavy Manufacturing was up in the mid-teens, Commercial was up in the low double digits, Retail was up in the high single digits, Light Manufacturing, Contractor and Government were up in the mid single digits, and Reseller was down in the low double digits. Canada saw a jump of 14% due to strong growth to customers in the construction, agriculture and mining, and heavy manufacturing end markets .
Daily sales at the company’s Other businesses, which include operations in Japan, Mexico, India, Puerto Rico, China and Panama, increased 97%. primarily due to incremental sales from Fabory. Excluding acquisitions, sales for other businesses increased 23%, driven primarily by strong growth in Japan, Mexico and China.
The sales growth of 15% was a drop from October sales growth of 16% year over year, the highest so far in 2011. Looking forward, December will have 21 selling days, the same as December of last year. Grainger has divulged that sales growth in early December is trending below the growth seen in November.
The company will face tougher comparisons in December than in November, which includes a 3 percentage point headwind from oil spill related sales as well as a 1 percentage point drag from strong sales of seasonal products in December of 2010. The relative strength of the U.S. dollar, particularly versus the Canadian dollar, looms as a potential headwind in contrast to the tailwind the company had enjoyed for the majority of the year.
In the third quarter of fiscal 2011, Grainger recorded $2.11 billion in sales , up 11.3% year over year and ahead of the Zacks Consensus Estimate of $2.09 billion. The outperformance was driven by strong sales across all segments. Volume growth and favorable pricing coupled with congenial foreign exchange rates and acquisitions contributed to the growth.
During its earnings call, the company raised its full year sales growth target to the range of 9% to 10% from the earlier band of 7% to 10%. The company also guided 2011 earnings between $8.40 and $8.70 per share, up from the prior forecast of $8.10 to $8.60 per share.
Grainger has been delivering consistent, double-digit sales growth so far in the year. Initiatives like E-Commerce, inventory management services and sales force expansion are bearing fruit. Grainger remains focused on expanding its product offerings and growing the share of its private label products.
The company expects to roll out almost 500,000 products going forward. The continued success of this program is expected to drive sales growth in 2011 and beyond.
Besides, Grainger is currently on an expansion spree to strengthen its business across each of its operating regions including North America, Canada, Asia and Latin America. The acquisition of Fabory Group, a leading European distributor of fasteners and related maintenance, repair and overhaul (MRO) products, marks the company’s entry in the world’s largest MRO market.
We retain our Neutral recommendation on W.W. Grainger. Shares of Grainger presently retain a Zacks #2 Rank (short-term Buy recommendation).
Illinois-based Grainger is a leading North American distributor of material handling equipment including safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, etc. The company’s services comprise inventory management and energy efficiency solutions. The company competes with Applied Industrial Technologies Inc. (AIT) and WESCO International Inc. (WCC).
