Grainger Misses Q2 Earnings Expectations, Mutes Guidance

Shares of Grainger (GWW) were down 3.6% on Friday after the industrial supply company reported mixed Q2 results and stated that the FY2021 EPS is expected at the lower end of the guided range.

Adjusted earnings of $4.27 per share grew 14% year-over-year but fell short of analysts’ expectations of $4.58 per share. The company reported adjusted earnings of $3.75 per share in the prior-year period.

Net Sales jumped 13% year-over-year to $3.2 billion and almost met the consensus estimate of $3.22 billion. The increase in net sales reflected a strong recovery in non-pandemic product growth in the High-Touch Solutions segment and impressive sales growth in the Endless Assortment segment. (See GWW stock charts on TipRanks)

However, gross margins declined 75 bps to 35% compared to the prior-year quarter due to the negative impact from inventory adjustments, as most local and federal mask mandates were removed in May.

Grainger CEO DG Macpherson commented, “As more of the U.S. became vaccinated, and mask mandates were relaxed earlier than expected, demand for pandemic products stalled, resulting in further inventory adjustments and a negative impact to gross profit margin.”

He added, “Excluding these adjustments, our underlying gross profit margin has improved as customer demand has returned to a more normal mix. We remain confident in our ability to achieve full year financial results within our guidance range.”

Muted Guidance

Looking ahead, the company reiterated its full-year guidance. The company forecast adjusted earnings in the range of $19 to $20.50 per share, while the consensus estimate is pegged at $19.84 per share. Revenues are forecast to be between $12.7 – $13 billion, versus the consensus estimate of $12.85 billion.

However, the company stated that margins and profit will bear the brunt of incremental inventory adjustments and macroeconomic factors. As a result, excluding revenues, the company expects results to come in around the low end of the guidance provided.

Following the Q2 results, Raymond James analyst Sam Darkatsh downgraded Grainger to a Hold from a Buy.

Overall, the stock has a Strong Buy consensus rating based on 2 Buys, 6 Holds, and 2 Sells. The average WW Grainger price target of $448.44 implies that shares are fully valued at current levels. Shares of GWW have jumped 30% over the past year.