TRITF Tri Tech Holding Inc (CE)

W.W. Grainger, Inc. (GWW) reported an 8% year over year increase in sales in April 2013. The growth has vastly improved from the prior-month increase of 3% but is below the growth rate of 12% achieved in the same period last year.

Apr 2013 had 22 selling days, compared with 21 last year. The growth in Apr sales stemmed from higher volumes (3 percentage points) and prices (2 percentage points), acquisitions (2 percentage points), and timing of the Easter holiday (2 percentage points), partially offset by a 1% decline from foreign exchange. The Easter holiday occurred in April of 2012 and in March of 2013.

Geographically, daily sales in the U.S. rose 9% helped by higher volume (4 percentage points), favorable pricing (3 percentage points), acquisitions (1 percentage point) and timing of Easter (1 percentage point). Heavy Manufacturing, Light Manufacturing and Natural Resources were up in the low double digits. Contractor and Retail were up in the high-single digits followed by Commercial in the mid-single digits. Government was up in the low single digits while reseller was down in the low single digits.

Canada saw 7% growth in sales, driven by a 4 percentage point growth in volume, 5 percentage point contribution from the timing of the Easter holiday, offset by an unfavorable currency impact of 2 percentage points. In local currency, sales increased 9%, driven by growth in the construction, utilities, commercial and forestry end markets. The Easter holiday had a more significant impact on the Canadian business as Acklands-Grainger is closed on Good Friday. There were two less selling days in April 2012 compared with April 2013.

Daily sales at the company's Other businesses, which include operations in Asia, Europe and Latin America, increased 7%, driven by higher volume (7 percentage points), acquisitions (4 percentage points), timing of Easter holiday (1 percentage point) partly offset by unfavorable impacts of foreign currency translation (5 percentage points).

According to Grainger, daily sales growth in May is trending in line with the growth in April, normalized for the 2 percentage point benefit from the Easter holiday. . The second quarter will have 64 selling days, same as the prior-year.

Reflecting on the sales growth figures last year, we see that it trended in the upper double digits till March. The momentum slowed with growth hovering in the lower double digits till it declined to 10% in August. Since then sales growth has remained in the single digits registering 9% in September and plunging to the lowest level of 2% in December. The timing of the holidays (Christmas and New Year’s Day) had a negative impact on sales in the fourth quarter.

So far in 2013, even though sales growth recovered to 8% in Jan 2013, it again dipped to 6% in February and 3% in March. The deterioration in March was due to the timing of the Easter holiday and customer spending pullbacks related to sequestration within the Government end market.

Grainger reported first-quarter 2013 earnings of $2.94 per share, up 14% year over year from $2.57, ahead of the Zacks Consensus Estimate of $2.73. Total revenue was $2.28 billion, up 4% from $2.19 billion in the year-ago period but missed the Zacks Consensus Estimate of $2.3 million.

Grainger increased its EPS guidance in the range of $11.30-$12.00 per share for fiscal 2013, up from the prior guidance of $10.85-$12.00 per share. The company however, increased its sales growth guidance to a new range of 5% to 9%, up from the prior projection of 3% to 9%.

We appreciate Grainger’s focus on expanding its product offerings as well as gaining traction for its private label products. Grainger expects to increase its product count from the current 413,000 to 500,000 products by 2015. The company has historically seen annual growth of approximately 2% on sales of products added through the program.

The company continues to expand its businesses across its operating regions, mainly in Asia and Latin America. Grainger also continues to invest in e-commerce, as it is reportedly growing two fold compared to other channels and is deemed to be its most profitable channel.

However, the recent slowdown in sales is a concern. Grainger has increased its investment spending for 2013 to $160 million from the previous projection of $135 million. Even though these initiatives will lead to additional share gains in the future, it will weigh on margins in the short term.

Grainger is a leading North American distributor of material handling equipment, safety and security supplies, lighting and electrical products, power and hand tools, pumps and plumbing supplies, cleaning and maintenance supplies, forestry and agriculture equipment, building and home inspection supplies, vehicle and fleet components, and various aftermarket components.

Grainger retains a short-term Zacks Rank #2 (Buy). Other industrial product makers with favorable Zacks rank are Insteel Industries Inc. (IIIN), Graco Inc. (GGG) and Tri-Tech Holding, Inc. (TRIT) with a Zacks Rank #1 (Strong Buy).

 
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