Grainger provides outlook at analyst meeting
Reiterates 2016 guidance and issues 2017 EPS guidance of $11.30 to $12.40
Grainger (NYSE: GWW), the leading broad line supplier of maintenance, repair and operating products (MRO) serving businesses and institutions, in November held its Annual Analyst Meeting in Lake Forest, Illinois. DG Macpherson, Grainger Chief Executive Officer, hosted the event. The meeting also included presentations from other Grainger leaders.
“Over the past several years, we have invested to position our business for long-term success and meet the evolving needs of our customers,” said Macpherson. He added, “We are leveraging these investments to provide unique value to customers of all types and sizes. And, we expect to enhance our industry-leading customer experience by making our pricing simpler and more relevant to drive faster growth and stronger share gain in our U.S. business for a broader set of customers. We expect that these actions, along with continued reductions in our cost structure and a turnaround of our business in Canada, will improve our financial performance and strengthen returns to shareholders,” Macpherson concluded.
As part of the meeting, Grainger provided the following outlook for sales and earnings in 2016 and 2017, adjusted for special items that the company believes are not indicative of ongoing operations:
- For the 2016 fourth quarter, the company is forecasting sales of -1 to 3 percent and expects earnings per share of $2.27 to $2.57.
- For the full year 2016, the company reiterated its sales forecast of 1.5 to 2.5 percent and earnings per share guidance of $11.40 to $11.70.
- For the full year 2017, the company is forecasting sales growth of 2 to 6 percent and earnings per share of $11.30 to $12.40.
Grainger also updated its longer term operating margin targets. The company now expects operating margins, excluding special items that the company believes are not indicative of ongoing operations, to increase from a range of 11.7 to 12.2 percent in 2017 to a range of 13 to 14 percent by the year 2021. This 25 to 50 basis point improvement per year is expected to come from organic sales growth in the mid to high single-digits and continued strong cost productivity. In addition, Grainger expects its Return on Invested Capital (ROIC) to improve from a range of 24 to 26 percent in 2017 to 31 to 33 percent in 2021 driven by higher sales and operating margins, lower capital spending and increased productivity across its existing asset base.
Company daily sales were flat in October of 2016 versus October of 2015, driven by a 1 percentage point increase in volume offset by a 1 percent decline in price. The month of October 2016 had 21 selling days, one fewer than the previous year. The 2016 fourth quarter will have 63 selling days, one fewer than the 2015 fourth quarter.
Third quarter results
For the 2016 third quarter ended September 30, 2016, sales of $2.6 billion increased 3 percent versus $2.5 billion in the third quarter of 2015. There were 64 selling days in the 2016 third quarter, the same as the 2015 third quarter. Net earnings for the quarter of $186 million were down 3 percent versus $192 million in 2015. Earnings per share of $3.05 increased 4 percent versus $2.92 in 2015.
“We continue to operate in a challenging economic environment,” said DG Macpherson, chief executive officer. “The third quarter results were within our expectations. I’m pleased with our ability to continue to effectively manage costs in this low growth environment while still investing in our future success.”
Macpherson added, “During the quarter, we continued to see strong revenue and earnings growth in our single channel online businesses, and we started operations in our new 1.3 million square foot distribution center in New Jersey. We expect fourth quarter demand to remain challenged, and as a result, we have narrowed our guidance and lowered the midpoint for the full year. We remain committed to managing the company for long-term success with a focus on providing our customers an exceptional experience at every touch.”
W.W. Grainger, Inc., with 2015 sales of $10 billion, is North America’s leading broad line supplier of maintenance, repair and operating products (MRO), with operations also in Europe, Asia and Latin America. Safety products represent about 20 percent of total sales.