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W.W. Graingers May Average Daily Sales Up Versus Forecast

W.W. Graingers May Average Daily Sales Up Versus Forecast

Grainger's May average daily sales (ADS) were up 6% (rounded down) versus our 7.5% forecast. After a difficult start to the year due to weather sales, trends have improved modestly, but less than we thought. Overall, Grainger has experienced fairly stable demand the past three months, but no meaningful acceleration. Results for the U.S. and online businesses were solid, but Canada was disappointing and Europe sales growth was negative. Commentary from peers at our conference this week was inconsistent.

Metalworking and nonresidential construction seem to be improving, but general industrial demand feels spotty. The stock is down almost 4%, and we recommend taking advantage of the weakness. We still believe Grainger is taking share and initiatives are working. Management is looking for improved second-half activity in North America, particularly in Canada. We are also cautiously optimistic for accelerating sales growth based on recent ISM data and continued share gains. June growth is trending in line with May s result.

We have reduced our June estimate from 8.0% to 6.5%. June 2014 has one more day than the prior-year period, which could be a slight negative for sales growth as some customers purchase based on monthly budgets. Similar to recent months, year-over-year pricing was flat in May. Management is guiding to 0%-1% annual price. This outlook is supported by peer commentary that there is little inflation in the channel and suppliers are not yet raising prices.

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With minimal price and a mix shift to large accounts, Grainger will have to work hard to maintain its gross margin. Canadian volumes remain pressured due to a tough economy, particularly in Western Canada. The 1% sales decline in Canadian dollars appears soft compared with Wesco International s (WCC $90.80; Outperform) comments that Canada sales growth improved from down 4% in local currency in the first quarter to 5%-plus growth in local currency in May. Grainger expects a better Canadian economy to drive improved results in the second half of the year.

W.W. Graingers May Average Daily Sales Up Versus Forecast

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