Continued strong execution fueling results;Company narrows 2024 earnings outlookThird Quarter Highlights Delivered sales of $4.4 billion, up 4.3%, or 4.0% on a daily, organic constant currency basis Achieved operating margin of 15.6%, down 30 basis points Generated diluted EPS of $9.87, up 4.7% Produced $611 million in operating cash flow and returned $328 million to Grainger shareholders through dividends and share repurchases Narrowing 2024 total Company earnings guidance ranges, including daily, organic ...

Industry Overview - The Zacks Industrial Services industry is currently facing challenges due to a prolonged contraction in the manufacturing sector, with customers being cautious about spending and rising input costs impacting operations [1][5][9] - The industry comprises companies providing industrial equipment products and MRO (maintenance, repair, and operations) services, serving a diverse customer base including commercial, government, healthcare, and manufacturing sectors [3][4] Current Trends - The manufacturing sector, which contributes approximately 70% to the industry's revenues, has seen a decline in industrial production by 0.6% over the past year, with the durable goods manufacturing index down 1.9% [5][6] - The Institute for Supply Management's manufacturing index has been in contraction territory for 16 consecutive months until a slight uptick in March 2024, but it fell back to 47.2% in September 2024 [6][7] - The New Orders index has contracted for six consecutive months, indicating a lack of consistent growth since May 2022 [8] Cost Management and Pricing Strategies - The industry is experiencing significant inflation, with rising labor, freight, and fuel costs, leading companies to implement pricing actions and cost-cutting measures to mitigate these challenges [9] - Companies are focusing on improving productivity and efficiency while diversifying their supplier base to combat labor shortages and high costs [9] E-commerce Growth Potential - The rise in e-commerce activities is expected to be a key growth driver for the industry, with global e-commerce sales projected to grow at a CAGR of 9.5% from 2024 to 2029 [11] - The U.S. retail e-commerce market is anticipated to exceed $1.5 trillion by 2026, growing at a CAGR of 9% during the same period, prompting industrial service companies to enhance their digital capabilities [12] Industry Performance and Valuation - The Zacks Industrial Services industry has underperformed compared to its sector and the Zacks S&P 500 composite, gaining only 17.8% over the past year compared to the sector's 35% and the S&P 500's 39.4% [15] - The industry is currently trading at a forward 12-month EV/EBITDA ratio of 29.30X, significantly higher than the S&P 500's 14.47X and the Industrial Products sector's 20.65X [16] Company Highlights - **Siemens**: The company is enhancing its industrial cybersecurity and integrating generative AI into operations, with recent acquisitions aimed at expanding its product offerings and improving electric vehicle charging infrastructure [17][18][20] - **W.W. Grainger, Inc.**: The company is focused on margin improvements and expanding its customer base through marketing investments, with a projected earnings growth of 5.5% for 2024 [21][23] - **SiteOne Landscape Supply, Inc.**: As the largest national distributor of landscape supplies, SiteOne is increasing its market share through acquisitions and investments in technology, with a projected earnings growth of 3.2% for 2024 [24][26]

The Zacks Industrial Services industry has been bearing the brunt of the prolonged contraction in the manufacturing sector as customers remain cautious about spending. Flared-up input costs have added to the woes. Despite the current setback, the rise in e-commerce activities will be a key catalyst for the industry. Companies like Siemens (SIEGY) , W.W. Grainger, Inc. (GWW) and SiteOne Landscape Supply, Inc. (SITE) are positioned for growth by leveraging strategies to capitalize on this demand. The companie ...

W.W. Grainger (GWW) is expected to deliver a year-over-year increase in earnings on higher revenues when it reports results for the quarter ended September 2024. This widely-known consensus outlook gives a good sense of the company's earnings picture, but how the actual results compare to these estimates is a powerful factor that could impact its near-term stock price.The earnings report, which is expected to be released on October 31, 2024, might help the stock move higher if these key numbers are better t ...

Core Viewpoint - W.W. Grainger (GWW) has experienced a significant stock price increase, attributed to strong performance across its business segments and positive earnings expectations for the upcoming quarter [1][4]. Group 1: Stock Performance - Grainger shares rose by 5.8% to close at $1,085.04, with trading volume higher than usual [1] - Over the past four weeks, the stock has gained 2.8% [1] Group 2: Business Segments Performance - The High-Touch Solutions North America segment is benefiting from volume growth and strong pricing, leading to improved gross margins [2] - The Endless Assortment segment is seeing customer acquisition and repeat business growth, particularly at MonotaRO [2] Group 3: Financial Guidance - Grainger anticipates earnings per share (EPS) of $38.00-$39.50 for 2024, indicating a 6% growth from 2023 [3] - Expected net sales are projected between $17 billion and $17.3 billion, with sales growth of 3.2-5.2% [3] - Daily sales growth is forecasted at 4-6% [3] Group 4: Upcoming Earnings Expectations - The company is expected to report quarterly earnings of $9.98 per share, reflecting a year-over-year increase of 5.8% [4] - Revenues are anticipated to reach $4.4 billion, up 4.6% from the previous year [4] Group 5: Earnings Estimate Trends - The consensus EPS estimate for Grainger has been revised slightly higher in the last 30 days, which typically correlates with stock price appreciation [5] - The stock currently holds a Zacks Rank of 3 (Hold) [5]

Core Insights - Grainger is expanding its operations by opening a new state-of-the-art distribution center in Houston, Texas, set to open in 2026, which will employ approximately 400 team members within a year of its opening [1][4] - The new facility aims to enhance Grainger's ability to ship next-day complete orders by stocking a broad range of products close to customers, with plans to increase the number of stocked industrial supply products from 150,000 to up to 300,000 [1][4] - Grainger has a long-standing commitment to community engagement, exemplified by a $20,000 donation to Roberts Road Elementary in Hockley, Texas, which aligns with the company's community investment strategy [2][3] Company Overview - Grainger, founded in 1927, is a leading broad line distributor with operations primarily in North America, Japan, and the United Kingdom, serving over 4.5 million customers worldwide [5] - In 2023, Grainger reported sales of $16.5 billion and operates under two business models: High-Touch Solutions, offering approximately 2 million MRO products, and Endless Assortment, providing access to over 35 million products through Zoro.com and MonotaRO.com [5]

Core Insights - The article emphasizes the importance of selecting dividend stocks based on sustainability and growth potential rather than just high current yields [1][3] Dividend Stock Selection Criteria - Investors should look for a conservative payout ratio below 50% to ensure financial stability [2] - A history of annual dividend increases over multiple decades is crucial for long-term investment [2] - A strong economic moat is necessary to protect profitability and ensure consistent returns [2] Featured Dividend Growth Stocks - **Target (TGT)**: - 53 years of consecutive dividend increases with a current yield of 2.9% and a payout ratio of 45% [4] - Five-year annualized dividend growth rate of 10.4% and a projected P/E ratio of 14.5 for 2026 [5] - Economic moat derived from strong brand recognition and efficient supply chain [5] - **Parker-Hannifin (PH)**: - 68 consecutive years of dividend increases with a current yield of 1.1% and a payout ratio of 27.8% [6] - Five-year annualized dividend growth rate of 13.2% and a projected P/E ratio of 20.2 for 2026 [7] - Economic moat based on technological expertise and strong OEM relationships [7] - **W.W. Grainger (GWW)**: - 53 years of consecutive dividend increases with a current yield of 0.8% and a payout ratio of 20.9% [8] - Five-year annualized dividend growth rate of 6% and a projected P/E ratio of 21.3 for 2026 [9] - Economic moat from vast distribution network and economies of scale [9] - **Tennant (TNC)**: - 52 consecutive years of dividend increases with a current yield of 1.2% and a payout ratio of 19% [10] - Five-year annualized dividend growth rate of 4.9% and a projected P/E ratio of 14 for 2026 [11] - Economic moat based on innovative product development and strong brand reputation [11] - **Walmart (WMT)**: - 51 years of consecutive dividend increases with a current yield of 1.1% and a payout ratio of 41.4% [12] - Five-year annualized dividend growth rate of 1.5% and a projected P/E ratio of 28 for 2026 [13] - Economic moat from massive scale and efficient supply chain [13] - **S&P Global (SPGI)**: - 51 consecutive years of dividend increases with a current yield of 0.7% and a payout ratio of 34.3% [14] - Five-year annualized dividend growth rate of 6.3% and a projected P/E ratio of 28 for 2026 [15] - Economic moat based on strong reputation and critical market role [15] Portfolio Strategy - Combining these dividend growth stocks into a diversified portfolio can enhance overall yield and growth while mitigating risk [15][16] - Investors may want to select only one of the two big-box retailers, Target or Walmart, for diversification purposes [16]

Investment Rating - The report maintains a rating of "Buy" for the company, indicating an expected relative price increase of 5% to 15% over the next six months [12]. Core Insights - The company's performance in Q2 2024 showed steady growth, with revenue increasing by 3.1% year-on-year to $4,312 million, and operating profit rising by 0.6% to $665 million. Earnings per share (EPS) grew by 5.2% to $9.76 [2]. - The HTS business continues to outperform the industry, with a revenue growth of 3.1% to $3,458 million, slightly above the industry growth rate of 2.5% to 3.0% [2]. - The EA business faced challenges due to yen depreciation, with revenue growth of 3.3% to $776 million, but local currency growth for MonotaRo was 13.2% [2]. - The company has revised its 2024 performance guidance, now expecting a revenue growth of approximately 3.2% to 5.2%, down from a previous estimate of 4.3% to 7.3% [2]. - The company is projected to achieve revenue growth of 4.3% in 2024, 6.1% in 2025, and 7.1% in 2026, with corresponding net profit growth of 2.2%, 9.6%, and 10.3% respectively [2]. Financial Projections - For 2023A, the company reported revenue of $16,478 million, with projections of $17,194 million for 2024E, $18,239 million for 2025E, and $19,539 million for 2026E, reflecting year-on-year growth rates of 8.2%, 4.3%, 6.1%, and 7.1% respectively [1][4]. - The net profit attributable to shareholders for 2023A was $1,829 million, with forecasts of $1,870 million for 2024E, $2,050 million for 2025E, and $2,261 million for 2026E, indicating growth rates of 18.2%, 2.3%, 9.6%, and 10.3% respectively [1][4]. - The projected earnings per share (EPS) are $37.46 for 2023A, $38.30 for 2024E, $41.99 for 2025E, and $46.30 for 2026E [1][4].

Core Viewpoint - W.W. Grainger reported a revenue of $4.31 billion for the quarter ended June 2024, reflecting a year-over-year increase of 3.1%, but fell short of the Zacks Consensus Estimate by 0.96% [1] Group 1: Financial Performance - The earnings per share (EPS) for the quarter was $9.76, compared to $9.28 a year ago, indicating a positive year-over-year change [1] - Total reported growth was 3.1%, which is below the average estimate of 3.9% based on five analysts [3] - Net Sales for High-Touch Solutions N.A. was $3.46 billion, slightly below the average estimate of $3.49 billion, with a year-over-year change of +3.1% [4] - Net Sales for Other was reported at $78 million, compared to the estimated $78.49 million, showing a +2.6% change year-over-year [5] - Net Sales for Endless Assortment reached $776 million, slightly above the estimated $775.89 million, with a +3.3% year-over-year change [6] Group 2: Operating Earnings - Operating earnings for High-Touch Solutions N.A. were $591 million, below the average estimate of $610.42 million [7] - Operating earnings for Endless Assortment were $61 million, exceeding the average estimate of $57.45 million [7] - Operating losses for Other were reported at -$3 million, better than the estimated -$3.82 million [7] Group 3: Stock Performance - Shares of W.W. Grainger have returned +6.7% over the past month, outperforming the Zacks S&P 500 composite's +1.1% change [8] - The stock currently holds a Zacks Rank 3 (Hold), suggesting it may perform in line with the broader market in the near term [8]

Financial Data and Key Metrics Changes - Total company reported sales increased by 3.1% or 5.1% on a daily organic constant currency basis, with positive contributions from both segments [6][9] - Operating margin for the total company was 15.4%, down 40 basis points year-over-year, while diluted EPS was $9.76, up 5.2% compared to the prior year [7][9] - Return on invested capital (ROIC) was 42.6%, and operating cash flow remained healthy, allowing the company to return $345 million to shareholders through dividends and share repurchases [7][9] Business Line Data and Key Metrics Changes - In the High-Touch Solutions segment, sales increased by 3.1% on a reported basis or 3.7% on a daily organic constant currency basis, driven by strong volume growth and moderate price contributions [9][10] - The Endless Assortment segment saw sales increase by 3.3% or 11.7% on a daily constant currency basis, with Zoro US up 8.7% and MonotaRO achieving 13.2% in local currency [12][13] - Operating margins for the Endless Assortment segment declined by 70 basis points to 7.9%, driven by lower gross margins at MonotaRO and SG&A deleverage at Zoro [14][15] Market Data and Key Metrics Changes - The U.S. MRO market, including volume and price, grew between 2.5% and 3%, with price contributing nearly all of the growth [11] - The High-Touch Solutions U.S. business grew at 3.6% organically, with a market outgrowth of roughly 100 basis points [11][12] - The company expects to achieve total company daily organic constant currency sales growth between 4% and 6% for the full year of 2024, reflecting continued market softness [15][16] Company Strategy and Development Direction - The company is focused on simplifying purchasing processes for customers and enhancing digital capabilities to drive customer engagement and efficiency [5][6] - Continued investment in demand generation activities is prioritized, with a commitment to growing SG&A slower than sales over time [16][19] - The company is also focused on continuous improvement and productivity actions to support long-term share gain [49][50] Management's Comments on Operating Environment and Future Outlook - Management noted that while 2024 is largely playing out as expected, there are headwinds from yen devaluation and pockets of demand softness in the U.S. [8][19] - The company remains confident in its ability to drive solid growth and strong profitability in the second half of the year, despite macroeconomic uncertainties [17][19] - Management emphasized the importance of maintaining a strong culture and fulfilling customer needs to achieve long-term success [19] Other Important Information - The company incurred $16 million in pre-tax restructuring costs during the quarter, which are expected to be a one-time event [2][49] - The company is experiencing challenges in international operations, particularly with the Cromwell business, but expects it to end the year profitable [29][30] Q&A Session Summary Question: Growth in High-Touch business and digital capability importance - Management indicated that most growth in midsize customers is attributed to share gain, with digital capabilities playing a significant role in building relationships [22][23] Question: Update on pricing actions and cost neutrality - Management believes they will achieve price-cost neutrality by the end of the year, with pricing actions from May 1 proceeding as expected [24][25] Question: Trends in July and overall sales performance - Preliminary July sales results were up roughly 2%, with expectations that this number would be higher when normalizing for tough comparisons from the previous year [27][28] Question: Update on international operations and profitability - The Cromwell business is expected to end the year profitable despite some challenges, and the U.K. market remains important for the company [29][30] Question: Marketing investment strategy in a changing macro environment - Management stated that marketing spend is guided by continuous testing and is not expected to change significantly based on macro conditions [35][36] Question: Path to improved margins for Zoro - Management expects consistent improvement in margins for Zoro as SG&A leverage is achieved with growth rates [44]