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What's in the Cards for Grainger (GWW) in Q1 Earnings?

W.W. Grainger, Inc. GWW is scheduled to report first-quarter 2016 results before the opening bell on Apr 18, 2016. In the last four quarters, the company has delivered a positive average earnings surprise of 4.12%. Let’s see how things are shaping up prior to this announcement.

Factors at Play

Last month, Grainger reported a meagre 1% year-over-year improvement in its monthly sales for Feb 2016, which was lower than the 4% rise in January. The company, however, expects daily sales gain in March to be better than February. It believes volumes in Canada will stabilize and return to levels that were seen before the deployment of SAP. However, Grainger anticipates tough year-over-year comparisons in the to-be-reported quarter as the year-ago quarter had witnessed strongest sales growth at the U.S. segment.

Weakness in the oil and gas industries continues to affect sales to Canadian customers, given that about 20% of the business is directly linked to these markets. In fact, Grainger expects operating results in Canada to remain under pressure for much of 2016 given the weak macroeconomic conditions. Moreover, expenses of $10 million related to the installation of SAP, which was initially planned for the fourth quarter of 2015, are now expected in the first quarter. Moreover, currency headwinds could take a toll on quarterly results.

Earnings Whispers

Our proven model does not conclusively show that Grainger is likely to beat earnings in this quarter. That is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), #2 (Buy) or #3 (Hold) for an earnings beat. Unfortunately, that is not the case here, as we will see below.

Zacks ESP: Grainger’s Earnings ESP is -3.50% as the Most Accurate estimate of $2.76 is lower than the Zacks Consensus Estimate of $2.86.

Zacks Rank: Grainger’s Zacks Rank #3, when combined with a negative ESP, makes surprise prediction difficult.

Note that we caution against stocks with a Zacks Rank #4 or #5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some stocks you may want to consider instead, as our model shows that they have the right combination of elements to post an earnings beat this quarter:

Nordson Corporation NDSN has an Earnings ESP of +1.09% and a Zacks Rank #2.

Parker-Hannifin Corporation PH has an Earnings ESP of +1.39% and a Zacks Rank #2.

Sonoco Products Co. SON has an Earnings ESP of +1.67% and a Zacks Rank #2.

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SONOCO PRODUCTS (SON): Free Stock Analysis Report
 
PARKER HANNIFIN (PH): Free Stock Analysis Report
 
NORDSON CORP (NDSN): Free Stock Analysis Report
 
GRAINGER W W (GWW): Free Stock Analysis Report
 
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