Stock Story -
Maintenance and repair supplier W.W. Grainger (NYSE:GWW) fell short of analysts' expectations in Q2 CY2024, with revenue up 3.1% year on year to $4.31 billion. On the other hand, the company's outlook for the full year was close to analysts' estimates with revenue guided to $17.45 billion at the midpoint. It made a non-GAAP profit of $9.76 per share, improving from its profit of $9.28 per share in the same quarter last year.
Is now the time to buy W.W. Grainger? Find out by reading the original article on StockStory, it's free.
W.W. Grainger (GWW) Q2 CY2024 Highlights:
- Revenue: $4.31 billion vs analyst estimates of $4.35 billion (small miss)
- EPS (non-GAAP): $9.76 vs analyst estimates of $9.59 (1.8% beat)
- EPS (non-GAAP) Guidance for the full year is $39.25 at the midpoint, roughly in line with what analysts were expecting
- Gross Margin (GAAP): 39.3%, in line with the same quarter last year
- Free Cash Flow of $335 million, down 38.2% from the previous quarter
- Organic Revenue rose 5.1% year on year (10.1% in the same quarter last year)
- Market Capitalization: $47.93 billion
Founded as a supplier of motors, W.W. Grainger (NYSE:GWW) provides maintenance, repair, and operating (MRO) supplies and services to businesses and institutions.
Maintenance and Repair DistributorsSupply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Maintenance and repair distributors that boast reliable selection and quickly deliver products to customers can benefit from this theme. While e-commerce hasn’t disrupted industrial distribution as much as consumer retail, it is still a real threat, forcing investment in omnichannel capabilities to serve customers everywhere. Additionally, maintenance and repair distributors are at the whim of economic cycles that impact the capital spending and construction projects that can juice demand.
Sales GrowthA company's long-term performance is an indicator of its overall business quality. While any business can experience short-term success, top-performing ones enjoy sustained growth for multiple years. Thankfully, W.W. Grainger's 8.2% annualized revenue growth over the last five years was decent. This shows it was successful in expanding, a useful starting point for our analysis.
Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. W.W. Grainger's annualized revenue growth of 8.6% over the last two years aligns with its five-year trend, suggesting its demand was stable.
We can dig further into the company's sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don't accurately reflect its fundamentals. Over the last two years, W.W. Grainger's organic revenue averaged 10.8% year-on-year growth. Because this number is better than its normal revenue growth, we can see that some mixture of divestitures and foreign exchange rates dampened its headline performance.
This quarter, W.W. Grainger's revenue grew 3.1% year on year to $4.31 billion, falling short of Wall Street's estimates. Looking ahead, Wall Street expects sales to grow 6.7% over the next 12 months, an acceleration from this quarter.
Operating MarginOperating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It's also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
W.W. Grainger has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13%. This result isn't surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, W.W. Grainger's annual operating margin rose by 7.6 percentage points over the last five years, showing its efficiency has meaningfully improved.
This quarter, W.W. Grainger generated an operating profit margin of 15.1%, in line with the same quarter last year. This indicates the company's cost structure has recently been stable.
EPSAnalyzing long-term revenue trends tells us about a company's historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth–for example, a company could inflate its sales through excessive spending on advertising and promotions.
W.W. Grainger's EPS grew at a spectacular 16.5% compounded annual growth rate over the last five years, higher than its 8.2% annualized revenue growth. This tells us the company became more profitable as it expanded.
Diving into the nuances of W.W. Grainger's earnings can give us a better understanding of its performance. As we mentioned earlier, W.W. Grainger's operating margin was flat this quarter but expanded by 7.6 percentage points over the last five years. On top of that, its share count shrank by 11.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.
Like with revenue, we also analyze EPS over a shorter period to see if we are missing a change in the business. For W.W. Grainger, its two-year annual EPS growth of 21% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.
In Q2, W.W. Grainger reported EPS at $9.76, up from $9.28 in the same quarter last year. This print beat analysts' estimates by 1.8%. Over the next 12 months, Wall Street expects W.W. Grainger to grow its earnings. Analysts are projecting its EPS of $37.14 in the last year to climb by 10.3% to $40.94.
Key Takeaways from W.W. Grainger's Q2 ResultsIt was good to see W.W. Grainger's full-year revenue forecast beat analysts' expectations. On the other hand, its revenue unfortunately missed and its organic revenue fell short Wall Street's estimates. Overall, this was a bad quarter for W.W. Grainger. The stock traded down 3.6% to $940 immediately following the results.
