Close

Not a member yet? Register now and get started.

lock and key

Sign in to your account.

Account Login

Forgot your password?

Grainger Idea Proposal (GWW)

Grainger Idea Proposal (GWW)
 

Did MRO buyers front-load purchases ahead of tariffs? What does this mean for Grainger?

Report Available: October 11, 2018

 

Blueshift’s initial research found MRO industry leader GWW having a great year. The company’s price reduction initiative, increased digital marketing, and improved ecommerce platforms are driving increasing purchase volume from existing accounts, inspiring inactive accounts to buy again, and leading to increased off-contract spot sales. Mid-market accounts are also beginning to look favorably upon GWW as the company said it is gaining share in this market segment. One question that looms over GWW and the entire MRO industry is whether the announcement and implementation of tariffs led to front loading of purchases in the second quarter. If so, this could slow future growth for GWW and others.

 

Observations

  1. GWW exceeded Q2 expectations with an earnings and revenue beat. Sales were up 9.4% and earnings were up 50% compared to the same period last year. The successful results were driven by strong growth with large and medium U.S. customers, better profit margins than expected, and lower operating expenses. Full-year guidance for 2018 was raised for both earnings and revenue. Sales are now expected to increase as much as 5.5% to 8.5%. During the earnings call questions regarding the effect of tariffs were addressed. Management said the company has been able to pass on any increased cost from the tariffs and has not experienced any slowdown in orders as a result of the tariffs. GWW is confident it can secure alternative sources if needed and pass through any increased cost incurred.
  2. Some Wall Street analysts and economists think the trade war rhetoric may have inflated the GDP to 4% growth or more in Q2 as U.S. exports rose as foreign companies increased their buying of U.S. goods and U.S. companies stockpiled supplies to avoid higher prices before tariffs began. According to these sources the Q2 numbers are not sustainable and growth is not expected to be anywhere near the 4% or 5% mark in Q3.
  3. Manufacturers and businesses have resorted to bulk and early buying to get ahead of the tariffs. Endres, a manufacturer of carbon steel for the construction industry, is one example. A spokesperson for the company said Endres started seeing distributors and servicers buying their products in bulk beginning in November to avoid higher prices the anticipated tariffs would bring. The rolled steel Endres uses in production has increased 30% to 40% from February to March. When the tariffs took effect June 1, Endres increased its prices 10% to 20%.
  4. Ahead of the tariffs, exporters pushed China’s June trade surplus to a new record and U.S. port traffic continues to increase. China’s June exports to the U.S. rose 10% as exporters admitted to front-loading shipments to beat tariffs. This action has further escalated the tensions between the Trump administration and China and could lead to additional tariffs. Shipping ports in the U.S. saw volume grow 5.6% in July as retailers scramble to stock inventory ahead of any additional tariffs that may be imposed.
  5. Blueshift Research’s June 15 report update found that GWW was likely to sustain its Q1 growth momentum through 2018, with large MRO accounts the primary growth driver for the company. GWW’s price reduction initiative has had a moderate effect on the company’s recent growth and has attracted some new customers. However, sources were indifferent, unaware of or not impressed with the price decrease. Rather, they said sales and new account growth were due to an improving business climate and GWW’s sales force initiative and digital marketing efforts. This was a slightly more positive story than our March 7 report that said GWW would retain its largest accounts but add few new customers. Headwinds that GWW must navigate to maintain its growth include its lack of pricing transparency and the recently implemented steel tariffs.

 

Did manufacturing and industrial MRO buyers front-load Q2 purchases to beat the tariffs? How are their orders in Q3? What are they doing with the increase in inventory from Q2 purchases? Are Q3 purchases expected to be up, down, or flat compared to Q2 and year to year? How are GWW customers’ purchases trending for the second half of 2018? Can GWW meet or exceed its revised 2018 growth target of 5.5% to 8.5%? To answer these and other questions, Blueshift will gather data and issue a market research report from independent sources in the following areas: MRO buyers and GWW customers.

 

Companies: W.W. Grainger Inc. (GWW), Fastenal Company (FAST), Genuine Parts Company (GPC), HD Supply Holdings Inc. (HDS), MSC Industrial Direct Co. Inc. (MSM)

 

Research Begins: September 24, 2018

 

Are you aware Intro-act, our corporate access solution, is part of the Blueshift Research ecosystem? To learn more, go to Intro-act.com or check out our video suite.