Maintenance and repair supplier W.W. Grainger (NYSE:GWW) met Wall Street’s revenue expectations in Q4 CY2024, with sales up 5.9% year on year to $4.23 billion. On the other hand, the company’s full-year revenue guidance of $17.85 billion at the midpoint came in 1.8% below analysts’ estimates. Its GAAP profit of $9.71 per share was in line with analysts’ consensus estimates.
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W.W. Grainger (GWW) Q4 CY2024 Highlights:
- Revenue: $4.23 billion vs analyst estimates of $4.24 billion (5.9% year-on-year growth, in line)
- EPS (GAAP): $9.71 vs analyst expectations of $9.75 (in line)
- Adjusted EBITDA: $709 million vs analyst estimates of $696.8 million (16.7% margin, 1.8% beat)
- Management’s revenue guidance for the upcoming financial year 2025 is $17.85 billion at the midpoint, missing analyst estimates by 1.8% and implying 4% growth (vs 4.2% in FY2024)
- EPS (GAAP) guidance for the upcoming financial year 2025 is $40.25 at the midpoint, missing analyst estimates by 4.4%
- Operating Margin: 15%, up from 13.9% in the same quarter last year
- Free Cash Flow Margin: 4%, down from 11.9% in the same quarter last year
- Organic Revenue rose 4.7% year on year, in line with the same quarter last year
- Market Capitalization: $54.84 billion
"Amidst a stable, yet muted demand environment throughout 2024, our team delivered strong performance by staying focused on what matters and delivering an outstanding customer experience. Across both our High-Touch Solutions and Endless Assortment segments, we deepened our customer relationships and advanced our capabilities, all while delivering on our commitments to shareholders," said D.G. Macpherson, Chairman and CEO.
Company Overview
Founded as a supplier of motors, W.W. Grainger (NYSE:GWW) provides maintenance, repair, and operating (MRO) supplies and services to businesses and institutions.
Maintenance and Repair Distributors
Supply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Maintenance and repair distributors that boast reliable selection and quickly deliver products to customers can benefit from this theme. While e-commerce hasn’t disrupted industrial distribution as much as consumer retail, it is still a real threat, forcing investment in omnichannel capabilities to serve customers everywhere. Additionally, maintenance and repair distributors are at the whim of economic cycles that impact the capital spending and construction projects that can juice demand.
Sales Growth
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Luckily, W.W. Grainger’s sales grew at a decent 8.4% compounded annual growth rate over the last five years. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.
We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. W.W. Grainger’s recent history shows its demand slowed as its annualized revenue growth of 6.2% over the last two years is below its five-year trend. 
W.W. Grainger also reports organic revenue, which strips out one-time events like acquisitions and currency fluctuations because they don’t accurately reflect its fundamentals. Over the last two years, W.W. Grainger’s organic revenue averaged 7.2% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results. 
This quarter, W.W. Grainger grew its revenue by 5.9% year on year, and its $4.23 billion of revenue was in line with Wall Street’s estimates.
Looking ahead, sell-side analysts expect revenue to grow 5.8% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and indicates its newer products and services will not accelerate its top-line performance yet. At least the company is tracking well in other measures of financial health.
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Operating Margin
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses–everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
W.W. Grainger has been an optimally-run company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 13.5%. This result isn’t surprising as its high gross margin gives it a favorable starting point.
Analyzing the trend in its profitability, W.W. Grainger’s operating margin rose by 6.7 percentage points over the last five years, as its sales growth gave it immense operating leverage.
In Q4, W.W. Grainger generated an operating profit margin of 15%, up 1 percentage points year on year. The increase was encouraging, and since its operating margin rose more than its gross margin, we can infer it was recently more efficient with expenses such as marketing, R&D, and administrative overhead.
Earnings Per Share
Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.
W.W. Grainger’s EPS grew at an astounding 20.4% compounded annual growth rate over the last five years, higher than its 8.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
We can take a deeper look into W.W. Grainger’s earnings quality to better understand the drivers of its performance. As we mentioned earlier, W.W. Grainger’s operating margin expanded by 6.7 percentage points over the last five years. On top of that, its share count shrank by 10%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth. 
Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.
For W.W. Grainger, its two-year annual EPS growth of 13.5% was lower than its five-year trend. We still think its growth was good and hope it can accelerate in the future.
In Q4, W.W. Grainger reported EPS at $9.71, up from $7.89 in the same quarter last year. This print was close to analysts’ estimates. Over the next 12 months, Wall Street expects W.W. Grainger’s full-year EPS of $38.71 to grow 8.9%.
Key Takeaways from W.W. Grainger’s Q4 Results
It was encouraging to see W.W. Grainger beat analysts’ EBITDA expectations this quarter. On the other hand, its full-year revenue and EPS guidance missed. Overall, this quarter could have been better. The stock traded down 5.8% to $1,061 immediately after reporting.
W.W. Grainger underperformed this quarter, but does that create an opportunity to invest right now? If you’re making that decision, you should consider the bigger picture of valuation, business qualities, as well as the latest earnings. We cover that in our actionable full research report which you can read here, it’s free.