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Focus on Digital Marketing to Aid Grainger (GWW) Q3 Earnings

Zacks

W.W. Grainger, Inc. GWW is expected to report third-quarter 2018 results on Oct 16, before the opening bell.

Grainger surpassed the Zacks Consensus Estimate in each of the trailing four quarters, generating an average positive surprise of 21.47%. In the last reported quarter, it delivered a positive earnings surprise of 15.61%.

Let’s see how things are shaping up for this announcement.

W.W. Grainger, Inc. Price and EPS Surprise.

W.W. Grainger, Inc. Price and EPS Surprise | W.W. Grainger, Inc. Quote


Why a Likely Positive Surprise?

Our proven model shows that Grainger is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen.

Earnings ESP: The Earnings ESP for Grainger is +0.98%. This is because the Most Accurate Estimate of $4.00 comes in higher than the Zacks Consensus Estimate of $3.96. A favorable Earnings ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Grainger currently sports a Zacks Rank #1. It should be noted that stocks with a Zacks Rank #1, 2 or 3 have a significantly higher chance of beating earnings.

Conversely, stocks with a Zacks Rank #4 or 5 (Sell rated) should never be considered going into an earnings announcement.

The combination of Grainger’s Zacks Rank #1 and Earnings ESP of +0.98% makes us confident of a likely earnings beat.

Factors to Influence Q3 Results

In the third quarter, Grainger is poised to gain from its focus on digital marketing. The company witnessed improvement in digital and off-line marketing mainly buoyed by the launch of Grainger.com and other electronic purchasing platforms in the United States and across all single channel online businesses. Thus, the company remains focused on improving the end-to-end customer experience by making investments in its e-commerce and digital capabilities, and executing continued improvement initiatives within the supply chain. Notably, it intends to continue to reduce the company’s cost base.

However, Grainger’s margins will be impacted in the Sep-end quarter as its suppliers resorted to price hikes to combat the effect of tariffs.

Notably, the company remains cautious about its Canada business. Although Grainger is focused on improving its gross margin and reducing the cost structure in Canada, increased expenses have been plaguing this segment. Further, the company’s oil and gas, and energy exposure in the nation is very high. Thus, fluctuating oil prices may hamper its results. Per the Zacks Consensus Estimates, net sales in the Canada segment are likely to drop around 6% to $177 million in the quarter under review. The segment will also likely report an adjusted operating loss of $4 million, narrower than the operating loss of $10 million reported in third-quarter 2017.

Furthermore, the Zacks Consensus Estimate for Grainger’s quarterly sales in the Unites States is $2.16 billion, reflecting around 7% year-over-year rise. The Zacks Consensus Estimate for adjusted operating income of the segment is pegged at $341 million for the to-be-reported quarter compared to $303 million recorded in the prior-year quarter. Its efforts to strengthen relationships with both large- and mid-sized U.S. customers by executing high-value sales and service model remain catalysts for the segment’s performance in the quarter to be reported.

In addition, the Zacks Consensus Estimate for Grainger’s earnings per share is pegged at $3.96 for the Jul-Sep quarter, reflecting year-over-year growth of 36.6%. The Zacks Consensus Estimate for total sales of $2.85 billion also indicates nearly 8% increase from the prior-year quarter.

Share Price Performance

Grainger’s price performance has been impressive over the past year. Shares of the company have appreciated around 74%, outperforming growth of 33% recorded by the industry.



Other Stocks to Consider

Here are some other companies that you may want to consider, as our model shows that these too have the right combination of elements to post an earnings beat this quarter:

Tetra Tech, Inc. TTEK has an Earnings ESP of +0.96% and a Zacks Rank #1. Its shares have gained 34% in the past year. You can see the complete list of today’s Zacks #1 Rank stocks here.

Flowserve Corporation FLS has an Earnings ESP of +2.90% and a Zacks Rank #2. The stock has gained 12% in a year’s time.

Deere & Company DE has an Earnings ESP of +1.39% and a Zacks Rank #3. The company’s shares have been up 14% during the past year.

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