-=Grainger (GWW) reported earnings on Tue 16 Oct 2018 (b/o)

Grainger beats by $0.19, reports revs in-line 

• Reports Q3 (Sep) earnings of $4.19 per share, $0.19 better than the S&P Capital IQ Consensus of $4.00; revenues rose 7.4% year/year to $2.83 bln vs the $2.84 bln S&P Capital IQ Consensus.
• Sales increased 7.4 percent in the 2018 third quarter versus the 2017 third quarter, driven by a 7 percentage point increase from volume and 1 percentage point increase in price, partially offset by a 1 percentage point decline from foreign exchange and the impact of hurricanes.

Grainger (-13%) at five-month low after slight top-line miss, lack of operating margin in US; mgmt sees FY18 at high end of prior guidance -- call notes 

• Sales up 7% (missed by 0.4%); volume up 7%; price up 1%; FX and hurricanes each had -40 bps impact; Normalized gross margin of 38.6%, flat Y/Y.
• Expects volume stabilization in coming quarters and in FY19
• EPS growth of 44% driven by both operating performance and below-the-line items
• Tracking toward high end of all metrics for FY18 guidance
  • Wants pto get away from giving guidance on a quarterly basis -- will likely give annual guidance but not update it quarterly next year
• Tariff exposure -- Directly sourced from China: 20% of US segment COGS; 50% of that is China product subject to tariffs; incremental tariffs of 25% -> increase in US cost of ~2%
  • Will pass on higher costs to customers; mitigate via alternate sourcing or higher prices
• Causing weakness: Lack of operating leverage in the US (margin +20 bps to 15.1%); outlook is much better when sales will be growing 2x op-ex
• Stable gross margin in FY19? Shooting for as close to flat as possible but will give guidance in January.