Grainger's Pricing Reset Continues To Drive Exceptional Volume Growth

I’ve been critical of several of W.W. Grainger’s (GWW) strategic moves over the years, particularly its overseas business decisions, but the decision to cut prices has proven so far to be a very good move for this company. Against a very healthy backdrop for manufacturing and construction, Grainger has managed to dramatically outperform smaller rival MSC Industrial (MSM) on volume and outperform Fastenal (FAST) on pricing, allowing the company to outperform both on margin and earnings leverage.

Grainger has done a great job of clawing back the mid-sized customers that it lost in years past when its pricing got too high, but what happens when it exhausts that supply remains an open question. There’s still room for distributors to run as the industrial cycle ages, and Grainger’s valuation isn’t unreasonable on an EV/EBITDA basis, but I do think it’s harder to make the long-term valuation case with the shares up roughly 100% over the past year.

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Grainger's Pricing Reset Continues To Drive Exceptional Volume Growth