W.W. Grainger, Inc. (GWW) on Q1 2021 Results - Earnings Call Transcript
Company Representatives: D.G. Macpherson - Chairman, Chief Executive Officer Dee Merriwether - Senior Vice President, Chief Financial Officer Irene Holman - Vice President of Investor Relations Operator: Greetings! And welcome to the Grainger First Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. . Please note, this conference is being recorded. I will now turn the conference over to our host, Irene Holman, Vice President of Investor Relations. Thank you. You may begin. Irene Holman: Good morning. Welcome to Grainger's First Quarter 2021 Earnings Call. With me are D.G. Macpherson, Chairman and CEO; and Dee Merriwether, Senior Vice President and CFO. As a reminder, some of our comments today may include forward-looking statements. Actual results may differ materially as a result of various risks and uncertainties, including those detailed in our SEC filings. Reconciliations of any non-GAAP financial measures and their corresponding GAAP measures are found in the tables at the end of this slide presentation and in our Q1 earnings release, both of which are available on our IR website. This morning's call will focus on adjusted results, which exclude restructuring and other items that are outlined in our earnings release. Now I'll turn it over to D.G. D.G. Macpherson: Thanks Irene. Good morning and thank you for joining us. Today I'll provide a brief overview of our first quarter results, key initiatives and encouraging signs for our business as the economy recovers. Of note, this will be our first quarter with results aligned to our two new reportable segments. Also as MonotaRO, our majority owned subsidiary as a publicly traded company on the Tokyo Stock Exchange, we have now aligned the timing for our earnings releases. I am very proud of the way the Grainger team has continued to serve our customers through the recovery and has addressed new challenges as they arise. We're supporting many customers through vaccination deployment, including pharmacies and other large sites. Recently we partnered with the State University Medical Center, The National Guard, and The Department of Health to support a max vaccination site. We offered the site with important pandemic related products like safety equipment, as well as more traditional MRO products needed to support the operation, like power and extension cords, lighting and traffic cones. As it ramped up, this site has been able to facilitate thousands of vaccinations a day. We're seeing vaccination distribution progressing around the world, albeit at different speeds. In the U.S. as more of the population gets vaccinated, we are seeing many customers return to the normal operations and purchasing patterns. This is evident that our non-pandemic sales continue to return to normal levels and as sales in most end markets grow sequentially. In the U.K. we are seen business activity rise. In Canada solar vaccine distribution and potential shutdowns are slowing the business recovery. We're also seeing a modestly slower recovery in Japan. Dee Merriwether: Thank you, D.G. As we move to our new reportable segment, you will continue to see a total company slide then a familiar four lines P&L for both High-Touch Solutions North America and Endless Assortments. We’ll also continue to provide transparency into the U.S., Canada. MonotaRO and the Zoro U.S. business. As we lap the pandemic, we will continue to provide pandemic related data to clarify our results, especially for the U.S. Turning to our quarterly results, organic daily sales which adjust for the divestitures of Fabory and China finished up 7% and 5.9% on a constant currency basis, underpinned by growth in both segments. Note that we have one less selling day in Q1, 2021 versus Q1, 2020. At the total company level, GP was down 190 basis points. 180 basis point of this was driven by pandemic fueled inventory adjustments in the U.S., consistent with what we shared in our Q4, 2020 earnings call. We anticipated the need for adjustment. As D.G. shared, we expect to complete any potential market driven inventory adjustments by the end of the second quarter and we estimate the amount will be similar to or lower than Q1. This expectation has been factored into our GP ramp, as well as our 2021 guidance. D.G. Macpherson: Thank you, Dee. I'm proud of the team and our results for the quarter across those segments and I'm confident in our performance moving forward. As Dee discussed, we expect to end this year having gained strong share and to be in a better profitability position than before the pandemic as we enter into 2022. We remain committed to fulfilling our purpose of keeping the world working as we get through the rest of the pandemic and back to normal operations, as well as continue to execute our strategy so we can achieve this purpose for years to come. And with that, we will open it up for questions. Operator: Thank you. Our first question comes from Ryan Merkel with William Blair. Please state your question. Ryan Merkel: Hey! Thanks and good morning all. I guess first off, your sales outlook is encouraging and a little bit better than I was thinking. Can you put some context around the 36% non-pandemic grow for the High-Touch Business in April. I know it was an easy comp, but it feels like the macro noticeably picked up. Is that the right read? A - D.G. Macpherson: Thanks Ryan for the questions. I think as we talked about this year’s comparisons for 2020 are going to be pretty closed upon given what happened this year. And so if you go back to 2019, what we see is a very consistent increase in non-pandemic relative to that 2019, and we see you know the pandemic sales continue to be elevated, but not as elevated as time goes on. And so really if you think about the revenue outlook for us, we're basically taking run rates and looking at what we think's going to happen with run rates and that gets us to the numbers we're talking about. So you don’t have to believe a lot about anything really changing in the macro versus just continued recovery. We still – you know we still have some segments that are struggling, that aren’t anywhere near where they were before, but a lot of the economy is really back and running fairly smoothly and non-pandemic is as well with those segments. Ryan Merkel: Okay, cool. And then secondly, the gross margin outlook for the High-Touch looks pretty consistent with the outlook in February. But my question is and I think you hit on this, are there cost headwinds that creep in during the second half relative to what you just reported here in the first quarter? I ask, because the first quarter adjusted results, you know near 40% imply that the second half could be 40% or higher, you know because the mix is going to improve. So is there an offset is the question? A - D.G. Macpherson: You know not really offset. So we think there's going to be some inflation. It's already starting to come in as Dee mentioned. We think as she said, that price cost is going to be neutral for the year. We think most of that's going to be noise. We think we’re going to get a little better mix moving forward, and then we get through the inventory write downs and you know where we're at now is similar to where we're likely to be moving forward, so it's not going to be a big shift due to cost increases that we foresee at this point. Operator: Thank you. Our next question comes from David Manthey with Baird. Please state your question. David Manthey: Hi! Good morning. Yeah, this all looks very good and thank you for all the modeling details, but I have a strategy question. Could you update us on the High-Touch Strategy, you want to talk about sales force technology, service offerings, any key initiatives for the rest of this year and into 2022, please D.J. – D.G., sorry. A - D.G. Macpherson: Yes, sure, sure, absolutely. Thanks Dave. You know so I would say that our strategic initiatives remain similar to what they've been the last year or so. We continue to invest pretty heavily in technology to improve our digital offerings to make this more curated and to help customers David Manthey: D.G., I'm not sure if anybody else is having the trouble hearing you. Is the moderator around here? Operator: Yes, Mr. Macpherson, can you adjust your mic here. You're cutting out quite a bit. A - D.G. Macpherson: Okay, can you hear me now? David Manthey: Much better, yeah. A - D.G. Macpherson: Alright, so what I was saying was the initiatives that we have are very similar to what we’ve had the last year. Our merchandising, we continue to invest in merchandising the assortment. We continue to invest in technology to improve our digital solutions. We continue to improve our marketing capabilities and increase spend in the marketing area. And you know our sales initiatives, a lot of what we're doing with our sellers is just getting back in front of customers again. We’ve done a really nice job of staying connected to customers and we're now getting out in the field more and we’re able to visit customers and re-engage and get started on things that might have been put off. And the other thing I'd say is, we've really seen nice growth in our KeepStock technology, and we're going to continue invest in KeepStock and improve our ability to serve customers and maintain their inventory. So those are the main initiatives in the business. All are moving along well and effectively. David Manthey: Sounds good. Thanks again D.G. I appreciate it. A - D.G. Macpherson: Thank you. Operator: Our next question comes from Christopher Glynn with Oppenheimer. Please state your question. Christopher Glynn : Hey, thanks. The low double digits are again a daily outlook, clearly very good. I'm wondering what amount of lower pandemic product sales is that net out. I was sort of thinking 3% given the 50 basis point delta with the H.T.S. outlook versus the market for the present year versus your normal 3% to 4% outgrowth, but maybe you have a better way to frame it up. D.G. Macpherson: Sure. Chris, just so I understand the question. Are you asking what we think is going to happen to the pandemic product sales as the year progresses? Christopher Glynn : Well, basically your top line guidance has some you know headwind netted out from lower pandemic sales. I’m wondering what kind of the mid-point basis that that is. A - D.G. Macpherson: Yeah, okay. So you know we – as Dee mentioned last year, at the peak of the pandemic we were probably 30% pandemic sales and for the year it was 28%. You know we're running about 25% now. We do expect that to moderate and get closer to 20%. I would say, we expect relative to 2019, we still expect some elevated pandemic sales. We're seeing that with, certainly for any of you that have been in the hospitals or medical offices, you know there's still much more PPE than in the past. We see that in government agencies, we see that in retail establishments and certainly in warehouses. So we expect some elevated, but we expect to slowly see that go from that 25% number down approaching 20%, closer to 20% by the end of the year. So we expect the comparisons year-over-year to go down with the pandemic, as non-pandemic comes up. But we don't expect the elevated sales to go away entirely. We expect there to be some long tail out here where there’s going to be elevated pandemic sales, so that's our expectation. Christopher Glynn : Okay, great. And just a point of clarification, I missed the revenue comments from the second quarter. D.G. Macpherson: On the call? Christopher Glynn : Yeah. A - D.G. Macpherson: Dee, do you want to get that? Dee Merriwether : Yeah. I mean the only thing we mentioned related to Q2 really was what we kind of lay out for High-Touch Solutions on page 9, which is between the range in April of 15 to 16. Christopher Glynn : Thank you. Operator: Our next question comes from Nigel Coe with Wolfe Research. Please state your question. Nigel Coe: Thanks, good morning. Great color in the slides, so thanks for that. I wanted to hone in on 2Q gross margins, and first of all, if we could just clarify the price cost recovery and mutual comments, is that on $1 basis. I’m assuming that’s $1 basis and therefore there’d be some element of margin dilution from there. Could you just clarify that? And then on 2Q margins, gross margins, are we still in a situation where you know normal seasonality, whatever normal means, would have gross margins down Q-to-Q? And then how do we size the inventory impact into 2Q versus 1Q? Thanks. A - D.G. Macpherson: So Dee, do you want to go ahead and take that one? Dee Merriwether: Sure. I mean, at the total company level we're expecting GP to be about flat year-over-year. I’d also reference you to you know – we really didn't size Q2. Specifically we kind of talked about what we believe the size of the impact is this quarter, and that we do not expect an inventory adjustment to be actually any larger than the adjustment that we had in Q1. We are still selling through a lot of the pandemic product very well; however, as we go through the year, we really want to get back to focusing on non-pandemic through investing in inventory and serving our customers well, so you know based upon the sell through on whatever we have remaining, it will be the adjustments that we expect in the second quarter, because we really want to get past that and get back to much normal operating numbers on a go forward basis. Nigel Coe: And then the price cost impact, but this is margin. Dee Merriwether: So from a price cost perspective, I will go back probably to the earlier question and response, which is you know we're seeing some inflation in the market. You know we took some pricing actions earlier in the year. We continue to work with our supply base. You know on any increases we have a pretty rigorous cost process that we work with our suppliers based on facts and from an outlook perspective, if we continue to see any more inflation that we feel and deem as needed to be passed on to customers, we feel confident in our ability to do that and that is why from an outlook perspective we are targeting price cost neutrality for the year. A - D.G. Macpherson: And Nigel, just to your point, the numbers, the inflation numbers are small enough that it doesn't really have a meaningful impact on Grainger, weather its $1 or rate. So we expect that to be very little impact, either on dollars or rate. Nigel Coe: Thank you. Operator: Our next question comes from Chris Snyder with UBS. Please state your questions. Chris Snyder: Thank you. You guys have talked about Zoro margins getting into the high single digit range. But if we think a longer term beyond I think the three to five years you guys have talked about, is there a structural reason that Zorro cannot get to the MonotaRO 12%-ish level. I'm going to ask if Zoro gross margin is running at 500 bips above MonotaRO, which is quite meaningful, and I presume it is supported by the Grainger U.S. distribution network. A - D.G. Macpherson: So, there's a lot in that question. So we do expect Zoro margins in the three to five year frame to be back, tipping in the upper single digits. There are some differences in the Japanese market and the U.S. market. The digital advertising market is very, very different and so that’s a structural difference. You know we expect the – one thing I'd point out is over time, and we’ve already started to see this. As we added skews into the assortment, we’ve actually leveraged third party shipper relationships more. We've already seen – you know we're getting away a little bit from the U.S. supply chains. The U.S. supply chains still makes up the bulk of the shipments, but not – will not be in that position forever. And one other thing – reason that's important is, on any way you look at it, the return on invested capital in the business going forward is going to be very strong. Today we reallocated some of the U.S. inventory at strong, very strong, and as it goes forward it'll even be stronger. So we don't expect to get fully to the Japanese margins. It's a different market, different market dynamics, but we do expect to have very strong profitability from the business, both from an operating margin perspective, but even more so on invested capital. Chris Snyder: I appreciate that. And then turning to the U.S. High-Touch, how do you feel about the revised 300 bips and 400 bips of outgrowth relative to when you first gave the guidance last year? And are you seeing new customers that came last year for pandemic products, re-order non pandemic? A - D.G. Macpherson: I’d say the short answer is, we feel good about the 300 to 400 basis points. You know last year if you take all the mess away, from what we saw, which was positive for us in terms of share gains given our supply chain strength and position, we were over 400 basis points of share gains just on sort of our demand generation activities. This year adjusted will be in a similar position. Something like that number we think is a good number for us at this point. What was the second half of that? I'm sorry. Chris Snyder: Are the new customers that came last year for pandemic products, are you seeing them in the order now panned out? D.G. Macpherson: Yes, absolutely. We're seeing strong repurchase from those customers and you know we – one of the things I would say is that, in the heat of the pandemic we had more consumer volume that we typically would have had. Filtering through that and getting the business customers, we’re seeing strong business repeated and business repeated in non-pandemic product as well. Operator: Thank you. Our next question comes from Deane Dray with RBC Capital Markets. Please state your question. Deane Dray: Thank you. Good morning everyone and I’ll also echo the – how much we appreciate the slides. Even though it’s the first time we've seen the new cast, yet it seems pretty intuitive there and a lot of details, so thanks. Here's my question; in these remarks sheet, it said that not all costs will come back and was hoping you could either just size for us, so just you know frame what kinds of costs maybe magnitude. And did I hear correctly that you're assuming only 50 basis points of outgrowth? Is that a second quarter or 2021 assumption? A - Dee Merriwether: Sure. You want me to start D.G. here? D.G. Macpherson: Yeah, go ahead. Dee Merriwether: So, as it relates to not all comps will come back, I think – you know I know we've learned a lot during the pandemic about working remotely and internally we're looking at what that could mean for us long term as it relates to helping us improve the SGA leverage on an ongoing basis. You know there may be different ways as you can imagine. We can interact with investors in the more virtual means as an example with suppliers and with customers to some extent in the future, so we may have some impact on a long term basis on overall company travel expenses as an example. Those are the type of things that we're thinking about and looking at now to help us look at long term leverage opportunity. You know so hopefully that helps answer that part of the question. And can you repeat the last part again Deane? Deane Dray: Yes, it was the assumption of 50 basis points of outgrowth and I think that was for 2021. It seems that's under trend, but if you look at on a two year average maybe you're in line, but what's causing the more modest outgrowth? A - Dee Merriwether: Yeah, so you know we continue to share that there was a lot of noise last year in 2020 and you know last quarter and then now we talked about the fact that we believe our 2020 share gain was inflated due to the pandemic and so then this year as we lap that, our share gain will be less than that. It’ll be muted as we lap those one-time, you know non-repeating pretty large orders that we experienced last year. So that's why we put those two year metrics in. We think it's more reasonable, because it takes out some of the noise that’s not perfect and so yes, then this year based upon that, we expect to outgrow the market by 50 bips. But as you said, last year at 800 when you average those two to get to about 425, and that is still above the targeted goal we set of you know consistently growing 300 to 400 basis points above the market. Deane Dray: Alright, that's really helpful. And then just as a second question, the 30 basis points of structural headwind from the lower margin Endless Assortment growing faster than High-Touch, is that the same kind of headwind we should expect for 2022, like the same magnitude? If not, you know what might change? Thanks. A - Dee Merriwether: You know for … Go ahead, Dave. A - D.G. Macpherson: Yeah, I would say yeah, we haven't calculated exactly, but I would see no reason why it would be similar. Our expectation is that the Assortment Business will continue to grow at about 20% a year moving forward and we’ll continue to gain share in the U.S. and the High-Touch is at a similar pace, so that should be roughly right. You know the map changed a little bit as the Endless Assortment gets bigger, but they should be roughly right. Operator: Thank you. Our next question comes from Hamzah Mazari with Jeffries. Please state your question. Hamzah Mazari: Good morning, thank you. My question is on the medium customer growth. It was pretty good in Q1 at 11%. Could you maybe talk about what your market share today is now on the medium customer business and then just remind us how accretive medium customers are to gross margins as well. Thank you. A - D.G. Macpherson: To share on…. Operator: Mr. Macpherson, it sounds like your mic is cutting out again. A - D.G. Macpherson: Okay, sorry about that. Is it better now? Operator: Yeah, go ahead please. A - D.G. Macpherson: Alright, there you go. So you know in terms of mid-sized customer growth, we're seeing very good growth right now. We will continue to see good growth. One of the reasons is that last year during the height of the pandemic we allocated inventory to the hospitals and government agencies. Actually it’s the right thing to do and so we had just inflated the growth of mid-sized customers last year. So we're going to see very good numbers this year and a lot of that's real, but a lot of that's due to the fact that we detailed inventory last year. Our expect – we’re about 2% share with mid-sized customers. We have a lot of room to grow. We’re getting back to where we were several years ago when we think we've got – you know 10 years ago, but we think we've got a long ways to go to grow and both with uncovered customers through digital means and through covered customers and inside sales we’re saying nice growth rates. And in terms of margin, its significantly higher gross profit. You know on the contribution margin level it's not as big a difference, but still a difference and you know we talked about 500 basis point plus difference in the past. Hamzah Mazari: Got you. And just my follow-up question is just on the Endless Assortment Business. Could you maybe talk about MonotaRO growing sales with enterprise customers? Is that something that's new? Is that something that Zoro can do as well or is that just sort of a difference in the market place in Japan versus the U.S.? D.G. Macpherson: Yeah, it's a great question, it’s not new. MonotaRO been doing it for five or six years I think. I may have that a little bit wrong, but something like that, they become better at it. The market in Japan is very, very different. I would say that there aren’t distributors like Granger serving customers with the kind of intensity that we have in the U.S. there, enterprise customers, and so we’re going to keep Zoro focused on smaller mid-sized businesses. There's a ton of runway for small and mid-sized businesses and as they get better we're seeing the fruits of that work and so that's going to be our focus for us. Operator: Thank you. Our next question comes from Jake Levinson with Melius Research. Please state your question. Jake Levinson: Good morning everyone. A - D.G. Macpherson: Good morning. Jake Levinson: Just turning to Canada for a second, I just wanted to ask if you – you guys see a path to profitability in that business that looks more like what we see in the U.S. over time? A - D.G. Macpherson: Yeah, the answers is yes, we do. Obviously we’ve had a long ride that’s been challenged in Canada. I think for the last two year, for the first time we have a really good customer experience. We have a team that's really energized. We will be – we feel we will be right at breakeven this year, we will be profitable next year and that's with what has been a very difficult path economically for Canada. So we feel good, you know whether or not we're going to get it up to the level of the U.S., ours is debatable. We feel like we have line of sight to getting it to strong profitability in Canada, and there's really no structural reason why we can't do that, and we are just on the execution path to making that happen now. Jake Levinson: Okay, that's helpful. Thank you D.G. I’ll pass it on. D.G. Macpherson: Thanks. Operator: Our next question comes from Kevin Marek with Deutsche Bank. Please state your question. Kevin Marek: Yes, hi! Thanks, good morning. D.G. Macpherson: Good morning. Kevin Marek: Just with respect to the full year guidance, wondering if you could talk a little bit more about some of the general supply chain conditions we touched on. It’s obviously, a topic that you talked about a lot and I’m curious if you’re seeing, and what kind of improvement or lack thereof you're expecting within the full year guide? D.G. Macpherson: Yeah, so I assume you're referring to sort of a lot of the global challenges in the supply chain. We see some of those issues certainly, the freight markets challenging right now. It's actually easing a bit and getting a little bit better as we head throughout the year it appears, and we feel like servicing costs are going to be – we have a decent chance for where that’s going to go. You know we see some of our customers disrupted by supply chain challenges, certainly you know automotive has been one that there’s been a lot of press on. Most of our customers are not disrupted by some of the supply chain challenges that we see, so we don't expect huge disruptions, although we expect a lot of messiness in the supply chain. I would say some things are getting a little bit better. I think port clearance is getting a little bit better now which is good to see. We are trying to bring a bunch of inventory into our buildings as we grow and there’s challenges. I would say in the entire supply chain, certain things are slower than they've been historically and I think that's definitely a condition that everybody has. Our assumption is that there's going to be messiness, we’ll manager it as well or better than anybody else and come through it well. At this point, but we do recognize that there's a lot of challenges in supply chain right now. Kevin Marek: Got it, thank you. And just a follow-up, just looking at the other segment, you’ve narrowed the loss to $3 million in 1Q. Just curious what you're seeing there? I think you said having losses in ’21 turning to profitability in the second half. You know is there a medium term, kind of profitability target or framework that you should be thinking about? D.G. Macpherson: You know I think most of that, most of the Cromwell business and I would say a couple things about the Cromwell business. One is, that business has very high customer satisfaction now. It has very high team engagement, they were just named 11th I guess best employer in the U.K. for large companies. That is very different than where we were at three years ago, on both of those dimensions and you know they're starting to see a return to growth now. U.K. is doing okay coming out the pandemic. We have some confidence that they're going to actually be able to get back to growth and get back to profitability, taking a bunch of cost out of the business and they're doing a lot of the right things. So we feel good about it. It's too early for me to talk about where there are going to be kind of mid-term. We’ve talked about, we need to see profitability from that business next year. We expect to exit the year profitable in Cromwell and that's going to be kind of a big check point for us, but there's a lot of positive signs that we will be able to do that. Operator: Thank you. Our next question comes from Adam Uhlman with Cleveland Research. Please state your question. Adam Uhlman: Hey guys, good morning. Congrats on a good execution this quarter. I have a couple of questions on Zoro. First of all, I think you mentioned there has been some changes with the discounting strategies at Zoro. I guess what's changed there to help drive the gross margin expansion. D.G. Macpherson: Yeah, I won’t go into too many details Adam. Thanks for the question. I would just say that we’ve used some analytics to determine where discount works and where it doesn't work and that has allowed us to be more targeted in our discounting to acquire new customers, and that is a big part of what the benefit and improvements are. Adam Uhlman: Okay and then, related to the customer count, thanks for sharing all that details, it's really helpful. I guess I'm surprised that Zoro and MonotaRO have the same number of customers, but MonotaRO is twice the size in revenues as Zoro is. As we think about like you know the path forward closing that gap, is all that just the skew expansion that you mentioned to get better customer penetration within the Zoro customers or is there other levers that you need to pull to continue to drive that sales growth. D.G. Macpherson: You know I think its two things Adam. I think it’s skew expansion and I think it’s, to your point about the size of the customer from the revenue, it's repeat buying and the Zoro business is getting traction on doing better, getting repeat volume from customers and building relationships with existing customers more, and that's been a lesson that we're learning from the Japanese business, that they've done very, very well. Is how do you take – how do you take a customer who buys and actually turn them into a customer for a long time. And that's the other piece that the team is really working hard to drive, and those are the skew count and that are really the drivers of what we need to get. Operator: Thank you. Our next question comes from Michael McGinn with Wells Fargo. Please state your question. Michael McGinn : Hey, thanks a lot for sneaking me in here. I just wanted to go back to the Endless Assortment model. Can you talk about the trajectory of GMV versus the sales and maybe the skew count? And as you shift away from the U.S. supply chain I think you alluded to, does that change your private label mix within your overall business? D.G. Macpherson: You know I’ll ask you to repeat the first part of that. Our private label mix shouldn't change all that much. Most of the private level we sell is through the Grainger brand and we are going to continue to push on growing private brand, and we have great brands and great products, and working hard to make sure we're able to cross those with national brands and that type of thing. I didn't quite understand the first part of your question. Could you repeat that? Michael McGinn : Yeah, so sequentially active skews on Zoro went from 6.1 to 6.7. I'm trying to kind of back into what is the internal I guess sales contribution versus what's being done on a GMV basis that would be more indicative of that reseller model that you're shifting to? So if the skews went up 9% sequentially, does that – is the GMV sales trend following that same kind of trajectory? D.G. Macpherson: Yeah, so what I would say there is a couple of things. One is, most of the new skews we are adding are going to be third party. We already have access to Zoro through Grainger, Grainger skews, so most of them are going to be third party, not all of those. The other thing I would say is that if you look at - we look very carefully at sort of revenue per skew for different tranches of ads. We continue to see very high productivity and similar revenue per skew as we add items across the assortment at Zoro, and in fact, given the numbers of skews we’ve added over the last couple of years, if you look at those curves, you will get pretty confident that we're going to see a big lift over time as we continue to add skews given what we are seeing. So we're pretty confident about sort of revenue path and what skew expansion will add for that business. Michael McGinn : Okay. And then, I don't know if this is asked or it was in the script, but the variance in national versus smaller and mid-sized accounts, is that simply a function. I think you've turned off some skews last year to protect some of the large customers. So it’s an easy comp or some other distributors or large customers are coming back faster than the local accounts. So any color there would be great. D.G. Macpherson: Yeah, I mean we are seeing good activity with both large and local accounts. I would say that for us you're going to see, particularly in the second quarter you're going to see a bigger list with mid-sized and local accounts as a result of holding skews in inventory for hospitals and government agencies in the peak of the pandemic last year. So we turned off skews for a number of our customers to make sure that we can get the product to the most helpful place, and so that's going to be a big factor in what you see. Operator: Thank you. Our next question comes from Justin Bergner with G Research. Please state your question. Justin Bergner: Thank you for double sneaking me in D.G. and Dee. My first question is, with respect to mix, as we look at the business over the medium term, obviously mid-sized customers are growing a little bit faster. Maybe there's some headwinds from larger customers getting larger. Is mix sort of a neutral for your U.S. business as you look at the business on a two to three year view? D.G. Macpherson: So we haven't shared probably the full perspective. I think mix is likely to be, if at all slightly positive in the High-Touch business. It's slightly negative from the growth of the Endless Assortment. As a company level we would expect it to not be a huge lever either way, but we do we do feel like the mid-sized customers are likely to grow faster over the next several years. So I think that will be a slight positive. Justin Bergner: Okay, and then the other question I’ll slip in was the government sales looked very strong this quarter and they were lapping a pretty good comp. I mean I realize there's a lot of comp noise there, but is there anything you want to call out that was particularly positive in the government performance this quarter that maybe was beyond the pandemic. D.G. Macpherson: No, I mean I think our government team does a great job and we have great relationships with government customers. Other comp get tougher you know in the second quarter for sure, and the third quarter given the pandemic activities .I would say, you know the initial flow last year at the pandemic hospitals were far and away the biggest demand and then government came in after that, but overall we are seeing really nice run rates with our government customers and expect that to continue. Operator: Thank you. Ladies and gentlemen there are no further questions at this time. I'll turn it back over to Mr. D.G. Macpherson for closing remarks. Thank you. D.G. Macpherson: Alright, terrific. Thanks for joining us. I really appreciate having you on the call. You know I would just reiterate that with what we've seen as we look through the last 18 months is certainly remarkable for all of us, but if you sort of boil it down, I think what we are likely to see is for us significant share gain over a two year period and I think our economic will be a better place when we come out of this than when we started going into the pandemic at the end of 2019. We feel like we’ve got great customer relationships and our team has done a very nice job of providing good service through what has been a challenging time and we feel like we are really in a good place going forward. So with that I’ll close, and I wish you all . Have a good day! Operator: Thank you. This concludes today's conference. All parties may disconnect. Have a great day!
W.W. Grainger, Inc. (NYSE:GWW) Earnings Report Highlights
- Earnings Per Share (EPS) for Q4 2024 reported at $9.71, slightly below the estimated $9.74.
- Q4 revenue reached approximately $4.23 billion, marking a 5.9% increase year-over-year.
- Anticipated net sales for 2025 are between $17.6 billion and $18.1 billion, with a strong financial outlook.
W.W. Grainger, Inc. (NYSE:GWW) is a leading supplier of maintenance, repair, and operating products. The company serves a wide range of industries, providing essential products and services to keep businesses running smoothly. GWW operates within the Zacks Industrial Services industry, competing with other major players in the sector.
On January 31, 2025, GWW reported earnings per share (EPS) of $9.71 for the fourth quarter of 2024, slightly below the estimated $9.74. This represents a minor earnings surprise of -0.41%, as highlighted by Zacks. Despite this, the EPS showed improvement from the previous year's $8.33, indicating growth in profitability.
GWW's revenue for the quarter was approximately $4.23 billion, just under the estimated $4.24 billion. This marks a 5.9% increase from the $4 billion reported in the same quarter the previous year. Daily sales also grew by 4.2%, surpassing the predicted 3.8% increase, demonstrating strong operational performance.
For 2025, GWW anticipates net sales between $17.6 billion and $18.1 billion. The company previously restated its EPS for the fourth quarter of 2023 to $7.89, accounting for the loss on the sale of its subsidiary, E&R Industrial Sales, Inc. This adjustment reflects GWW's commitment to transparent financial reporting.
GWW's financial metrics provide insights into its market valuation. The company has a price-to-earnings (P/E) ratio of approximately 27.13 and a price-to-sales ratio of about 3.02. Its debt-to-equity ratio is around 0.30, indicating a moderate level of debt. The current ratio of 2.49 suggests GWW's strong ability to cover short-term liabilities.
W.W. Grainger, Inc. (NYSE:GWW) Earnings Report Highlights
- Earnings Per Share (EPS) for Q4 2024 reported at $9.71, slightly below the estimated $9.74.
- Q4 revenue reached approximately $4.23 billion, marking a 5.9% increase year-over-year.
- Anticipated net sales for 2025 are between $17.6 billion and $18.1 billion, with a strong financial outlook.
W.W. Grainger, Inc. (NYSE:GWW) is a leading supplier of maintenance, repair, and operating products. The company serves a wide range of industries, providing essential products and services to keep businesses running smoothly. GWW operates within the Zacks Industrial Services industry, competing with other major players in the sector.
On January 31, 2025, GWW reported earnings per share (EPS) of $9.71 for the fourth quarter of 2024, slightly below the estimated $9.74. This represents a minor earnings surprise of -0.41%, as highlighted by Zacks. Despite this, the EPS showed improvement from the previous year's $8.33, indicating growth in profitability.
GWW's revenue for the quarter was approximately $4.23 billion, just under the estimated $4.24 billion. This marks a 5.9% increase from the $4 billion reported in the same quarter the previous year. Daily sales also grew by 4.2%, surpassing the predicted 3.8% increase, demonstrating strong operational performance.
For 2025, GWW anticipates net sales between $17.6 billion and $18.1 billion. The company previously restated its EPS for the fourth quarter of 2023 to $7.89, accounting for the loss on the sale of its subsidiary, E&R Industrial Sales, Inc. This adjustment reflects GWW's commitment to transparent financial reporting.
GWW's financial metrics provide insights into its market valuation. The company has a price-to-earnings (P/E) ratio of approximately 27.13 and a price-to-sales ratio of about 3.02. Its debt-to-equity ratio is around 0.30, indicating a moderate level of debt. The current ratio of 2.49 suggests GWW's strong ability to cover short-term liabilities.
W.W. Grainger, Inc. (NYSE:GWW) Quarterly Earnings Preview
- Expected Earnings Release: Grainger is set to announce its quarterly earnings on January 31, 2025, with an anticipated EPS of $9.74 and revenue projections of $4.24 billion.
- Financial Performance: The company is expected to show a 5.9% increase in revenues and a 17.1% growth in EPS year-over-year, benefiting from strong organic growth and cost-reduction strategies.
- Market Valuation Ratios: Grainger's financial metrics, including a P/E ratio of 29.72 and a price-to-sales ratio of 3.20, provide insights into its market valuation and profitability potential.
W.W. Grainger, Inc. (NYSE:GWW) is a leading supplier of maintenance, repair, and operating products, serving a wide range of industries with essential products and services. Competing against companies like Fastenal and MSC Industrial Direct, Grainger is poised to release its quarterly earnings on January 31, 2025. Wall Street's expectations are set at an earnings per share (EPS) of $9.74 and revenue of approximately $4.24 billion.
Grainger's performance is anticipated to benefit from strong organic growth and effective cost-reduction strategies. The Zacks Consensus Estimate projects revenues to reach $4.23 billion, marking a 5.9% increase from the same period last year. The EPS is estimated at $9.75, reflecting a 17.1% year-over-year growth. Over the past 60 days, the consensus estimate for Grainger's earnings has risen by 0.2%.
Historically, Grainger has exceeded the Zacks Consensus Estimates in three of the last four quarters, with an average earnings surprise of 1.2%. The current model from Zacks suggests that Grainger is likely to surpass earnings expectations once again. If the actual results surpass these estimates, it could lead to an upward movement in the stock price. Conversely, if the results fall short, the stock may experience a decline.
Grainger is experiencing positive momentum due to volume growth across its segments and strategic pricing actions, despite facing elevated costs. The High-Touch Solutions segment benefits from an improved product mix, while the Endless Assortment segment sees growth from repeat customers at MonotaRO. Grainger's focus on effective inventory management and investments in e-commerce and digital capabilities are expected to enhance profitability in the coming quarters.
Grainger's financial metrics provide insights into its valuation. The company has a price-to-earnings (P/E) ratio of approximately 29.72, indicating the market's valuation of its earnings. The price-to-sales ratio stands at about 3.20, reflecting the market's valuation of its revenue. Additionally, the enterprise value to sales ratio is around 3.31, and the enterprise value to operating cash flow ratio is approximately 24.49. The debt-to-equity ratio is approximately 0.92, suggesting a moderate level of debt relative to equity. The current ratio is about 2.59, indicating the company's ability to cover its short-term liabilities with its short-term assets.
W.W. Grainger, Inc. (NYSE:GWW) Quarterly Earnings Preview
- Expected Earnings Release: Grainger is set to announce its quarterly earnings on January 31, 2025, with an anticipated EPS of $9.74 and revenue projections of $4.24 billion.
- Financial Performance: The company is expected to show a 5.9% increase in revenues and a 17.1% growth in EPS year-over-year, benefiting from strong organic growth and cost-reduction strategies.
- Market Valuation Ratios: Grainger's financial metrics, including a P/E ratio of 29.72 and a price-to-sales ratio of 3.20, provide insights into its market valuation and profitability potential.
W.W. Grainger, Inc. (NYSE:GWW) is a leading supplier of maintenance, repair, and operating products, serving a wide range of industries with essential products and services. Competing against companies like Fastenal and MSC Industrial Direct, Grainger is poised to release its quarterly earnings on January 31, 2025. Wall Street's expectations are set at an earnings per share (EPS) of $9.74 and revenue of approximately $4.24 billion.
Grainger's performance is anticipated to benefit from strong organic growth and effective cost-reduction strategies. The Zacks Consensus Estimate projects revenues to reach $4.23 billion, marking a 5.9% increase from the same period last year. The EPS is estimated at $9.75, reflecting a 17.1% year-over-year growth. Over the past 60 days, the consensus estimate for Grainger's earnings has risen by 0.2%.
Historically, Grainger has exceeded the Zacks Consensus Estimates in three of the last four quarters, with an average earnings surprise of 1.2%. The current model from Zacks suggests that Grainger is likely to surpass earnings expectations once again. If the actual results surpass these estimates, it could lead to an upward movement in the stock price. Conversely, if the results fall short, the stock may experience a decline.
Grainger is experiencing positive momentum due to volume growth across its segments and strategic pricing actions, despite facing elevated costs. The High-Touch Solutions segment benefits from an improved product mix, while the Endless Assortment segment sees growth from repeat customers at MonotaRO. Grainger's focus on effective inventory management and investments in e-commerce and digital capabilities are expected to enhance profitability in the coming quarters.
Grainger's financial metrics provide insights into its valuation. The company has a price-to-earnings (P/E) ratio of approximately 29.72, indicating the market's valuation of its earnings. The price-to-sales ratio stands at about 3.20, reflecting the market's valuation of its revenue. Additionally, the enterprise value to sales ratio is around 3.31, and the enterprise value to operating cash flow ratio is approximately 24.49. The debt-to-equity ratio is approximately 0.92, suggesting a moderate level of debt relative to equity. The current ratio is about 2.59, indicating the company's ability to cover its short-term liabilities with its short-term assets.
W.W. Grainger, Inc. (NYSE:GWW) Shows Positive Trend in Analysts' Price Targets Amid Anticipated Earnings Growth
- The consensus price target for Grainger's stock has increased over the past year, indicating growing analyst confidence.
- Grainger's anticipated earnings growth is a key factor contributing to the positive shift in consensus price target.
- The company experienced a significant surge in its share price, rising by 5.8% during the last trading session on above-average trading volume.
W.W. Grainger, Inc. (NYSE:GWW) is a leading distributor of maintenance, repair, and operating (MRO) products and services. The company serves a wide range of clients, including businesses, corporations, and government entities. Grainger operates through two main segments: High-Touch Solutions N.A. and Endless Assortment, offering products like safety supplies, material handling equipment, and cleaning supplies. The company also provides inventory management and technical support services, utilizing both traditional and electronic sales channels.
The consensus price target for Grainger's stock has shown a positive trend over the past year. A year ago, the average price target was $1,007.50, which increased to $1,023.75 last quarter, and most recently, it has risen to $1,077.50. This upward trend indicates growing confidence among analysts in Grainger's market performance and potential for future growth. UBS analysts have set a price target of $695, reflecting positive expectations for the company's performance.
Grainger's anticipated earnings growth in its upcoming financial release is a key factor contributing to the positive shift in the consensus price target. The company has a strong track record of surpassing earnings expectations, and analysts believe it is well-positioned to potentially exceed estimates in its upcoming quarterly report. Investors are advised to prepare for the upcoming report by understanding the key expectations surrounding Grainger's financial results.
Recently, Grainger experienced a significant surge in its share price, rising by 5.8% during the last trading session. This increase occurred on above-average trading volume, indicating strong investor interest. The trend in earnings estimate revisions for Grainger suggests potential for continued strength in the stock's performance. UBS's price target of $695 reflects optimism about the company's future prospects.
Grainger's recent Q2 2024 earnings conference call provided insights into the company's financial health and strategic direction. Key company participants, including CEO Donald Macpherson and CFO Deidra Merriwether, discussed the latest financial results and market conditions. Analysts from various firms participated in the discussion, highlighting the importance of Grainger's strategic initiatives and market expansion in driving future growth.
W.W. Grainger, Inc. (NYSE:GWW) Shows Positive Trend in Analysts' Price Targets Amid Anticipated Earnings Growth
- The consensus price target for Grainger's stock has increased over the past year, indicating growing analyst confidence.
- Grainger's anticipated earnings growth is a key factor contributing to the positive shift in consensus price target.
- The company experienced a significant surge in its share price, rising by 5.8% during the last trading session on above-average trading volume.
W.W. Grainger, Inc. (NYSE:GWW) is a leading distributor of maintenance, repair, and operating (MRO) products and services. The company serves a wide range of clients, including businesses, corporations, and government entities. Grainger operates through two main segments: High-Touch Solutions N.A. and Endless Assortment, offering products like safety supplies, material handling equipment, and cleaning supplies. The company also provides inventory management and technical support services, utilizing both traditional and electronic sales channels.
The consensus price target for Grainger's stock has shown a positive trend over the past year. A year ago, the average price target was $1,007.50, which increased to $1,023.75 last quarter, and most recently, it has risen to $1,077.50. This upward trend indicates growing confidence among analysts in Grainger's market performance and potential for future growth. UBS analysts have set a price target of $695, reflecting positive expectations for the company's performance.
Grainger's anticipated earnings growth in its upcoming financial release is a key factor contributing to the positive shift in the consensus price target. The company has a strong track record of surpassing earnings expectations, and analysts believe it is well-positioned to potentially exceed estimates in its upcoming quarterly report. Investors are advised to prepare for the upcoming report by understanding the key expectations surrounding Grainger's financial results.
Recently, Grainger experienced a significant surge in its share price, rising by 5.8% during the last trading session. This increase occurred on above-average trading volume, indicating strong investor interest. The trend in earnings estimate revisions for Grainger suggests potential for continued strength in the stock's performance. UBS's price target of $695 reflects optimism about the company's future prospects.
Grainger's recent Q2 2024 earnings conference call provided insights into the company's financial health and strategic direction. Key company participants, including CEO Donald Macpherson and CFO Deidra Merriwether, discussed the latest financial results and market conditions. Analysts from various firms participated in the discussion, highlighting the importance of Grainger's strategic initiatives and market expansion in driving future growth.
WW Grainger Gains 5% Following Stephens Upgrade
WW Grainger (NYSE:GWW) shares rose more than 5% pre-market today after Stephens analysts upgraded the company from Equal Weight to Overweight, while also increasing the price target from $1,000 to $1,250.
The analysts expressed that the upgrade might have been more timely in 2022, given WW Grainger's strong performance during challenging inflationary and supply chain conditions, which led to an impressive beat and raise cycle.
Moving forward, the analysts developed a strong belief in the company's trajectory toward becoming a top-tier industrial entity, anticipating a mid-teens total shareholder return. This outlook is supported by two main factors: the lasting impacts of digital transformation that are expected to enhance market share through high-touch customer interactions, potentially resulting in a double-digit organic EPS compound annual growth rate; and strategic capital allocation that could contribute an additional 300 to 400 basis points to annual returns.
