Grainger Moving To The Next Phase

Companies like Grainger (NYSE:GWW) tend to do quite well in the early phases of an economic recovery. Not only do these companies have to replenish low inventories of components and supplies (worked down below normally desirable levels during a slowdown), but they actively begin expanding production again. The question, though, is what happens when that early cycle is over - companies will continue to order from Grainger as this recovery moves into its next phase, but investor enthusiasm may transition on to the next flavor-of-the-month. (For related reading, see The Best Business To Be In During A Recovery.)

The Quarter that Was
Sales grew 19%, as reported in the third quarter, with the company's U.S. business growing 13% (ex-acquisitions). Volume made up about 9% of that overall growth, with pricing more or less flat. Within the numbers, heavy and light manufacturing were the strongest sectors, while government, commercial and contractor categories limped along at single-digit growth. A little more concerning, though, was the pattern of growth - every month of the third quarter was weaker on a year-over-year basis than the prior quarter. In other words, the company is still logging impressive double-digit growth, but the rate is slowing, and that will certainly perturb some momentum and growth investors. 


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