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WG

W.W. GRAINGER, INC. (GWW)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered $4.31B sales (+1.7% reported; +4.4% daily, constant currency) and $9.86 diluted EPS (+2.5%), with operating margin of 15.6% (-20 bps); results were broadly in line with internal expectations and supported by gross margin expansion and strong EA momentum .
  • Versus S&P Global consensus, EPS beat ($9.86 vs $9.51*) while revenue was essentially in line/slight miss ($4.306B vs $4.317B*); management reaffirmed full-year 2025 guidance .
  • Early and targeted tariff-related pricing actions were initiated on May 1; management continues to target price/cost neutrality over time and flagged a modest net price impact of ~1%–1.5% near-term while monitoring demand elasticity .
  • April sales trends improved: preliminary April daily, constant currency growth was ~+5.5%; Q2 outlook calls for sales just north of ~$4.5B and operating margin at or near ~15% .
  • Capital returns and cash generation remained robust: $646M operating cash flow, $521M FCF, and $380M returned via dividends and buybacks; quarterly dividend increased 10% to $2.26 per share (54th consecutive year of expected increases) .

What Went Well and What Went Wrong

What Went Well

  • Endless Assortment delivered double-digit growth: +10.3% reported (+15.3% daily CC) with operating margin up 80 bps to 8.7%; Zoro +18.4% and MonotaRO +13.6% (local days, local currency) drove the segment .
  • Company gross margin expanded 30 bps to 39.7% on favorable mix and supplier funding; HTS N.A. gross margin was 42.4% (+60 bps) .
  • Strong cash generation and shareholder returns: $646M CFO, $521M FCF, and $380M returned; dividend raised 10% to $2.26/share .
  • Management tone: “the quarter finished largely in line with expectations, and we remain on track to deliver on our 2025 guidance” .

What Went Wrong

  • HTS N.A. softness: reported sales -0.2% (though +1.9% daily CC); segment SG&A delevered 80 bps due to one fewer selling day and the sales meeting; HTS N.A. operating margin 17.7% (-20 bps) .
  • Consolidated operating margin down 20 bps to 15.6%, as HTS deleverage offset EA leverage and gross margin gains .
  • Macro/tariff uncertainty: management pivoted away from quarterly outgrowth disclosure due to divergence in benchmarks; government demand was “relatively weak” to start the year; manufacturing mixed (aerospace strong) .

Financial Results

Key metrics across recent quarters (oldest → newest)

MetricQ3 2024Q4 2024Q1 2025
Revenue ($USD Billions)$4.388 $4.233 $4.306
Diluted EPS ($)$9.87 $9.71 $9.86
Gross Profit Margin (%)39.2% 39.6% 39.7%
Operating Margin (%)15.6% 15.0% 15.6%
Effective Tax Rate (%)24.8% 20.1% 23.9%

Q1 2025 YoY comparison

MetricQ1 2024Q1 2025
Revenue ($USD Billions)$4.235 $4.306
Diluted EPS ($)$9.62 $9.86
Gross Profit Margin (%)39.4% 39.7%
Operating Margin (%)15.8% 15.6%
Effective Tax Rate (%)24.2% 23.9%

Q1 2025 vs S&P Global consensus

MetricQ1 2025 ActualS&P Global Consensus*Surprise
Revenue ($USD Billions)$4.306 $4.317*-$0.011B
Diluted EPS ($)$9.86 $9.51*+$0.35

Note: Estimates marked with * are from S&P Global.

Segment performance (Q1 2025)

SegmentSales Growth (Reported)Daily CC Sales GrowthGross MarginOperating Margin
High-Touch Solutions – N.A.-0.2% +1.9% 42.4% (+60 bps YoY) 17.7%
Endless Assortment+10.3% +15.3% +30 bps YoY 8.7% (+80 bps YoY)

Additional EA details: Zoro U.S. +18.4% and MonotaRO +13.6% (local days, local currency); Zoro operating margin 5.2%, MonotaRO ~12% .

KPIs and operating metrics

KPIQ1 2025
Daily, Constant Currency Sales Growth+4.4%
Operating Cash Flow$646M
Free Cash Flow$521M
CapEx (cash)$125M
Shareholder Returns (Dividends + Buybacks)$380M
Effective Tax Rate23.9%
U.S. Selling Days63 vs 64 LY
April Daily CC Sales Growth (prelim)~+5.5%
Q2 2025 Outlook (management)Sales just north of ~$4.5B; Op margin ~15%

Guidance Changes

MetricPeriodPrevious (1/31/25)Current (5/1/25)Change
Net SalesFY 2025$17.6–$18.1B $17.6–$18.1B Maintained
Sales GrowthFY 20252.7%–5.2% 2.7%–5.2% Maintained
Daily, Constant Currency Sales GrowthFY 20254.0%–6.5% 4.0%–6.5% Maintained
Gross Profit MarginFY 202539.1%–39.4% 39.1%–39.4% Maintained
Operating MarginFY 202515.1%–15.5% 15.1%–15.5% Maintained
Diluted EPSFY 2025$39.00–$41.50 $39.00–$41.50 Maintained
Operating Cash FlowFY 2025$2.05–$2.25B $2.05–$2.25B Maintained
CapEx (cash)FY 2025$0.45–$0.55B $0.45–$0.55B Maintained
Share BuybackFY 2025$1.15–$1.25B $1.15–$1.25B Maintained
Effective Tax RateFY 2025~23.8% ~23.8% Maintained
Segment Op Margin – HTS N.A.FY 202517.0%–17.4% 17.0%–17.4% Maintained
Segment Op Margin – EAFY 20258.5%–9.0% 8.5%–9.0% Maintained
Quarterly Dividend per ShareCurrent—$2.26 (+10% YoY increase) Raised

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Tariffs & PricingTariffs cited in risk factors; limited operational commentary Initial tariff-related pricing actions (mainly direct imports); targeting price/cost neutrality; net price impact ~1%–1.5% near term; pace of supplier negotiations slow Rising focus; measured pass-through
Market Outgrowth DisclosureContinued use of benchmarks; strong execution in muted demand Pivot to annual outgrowth disclosure due to divergence in IP vs internal model under tariff noise Methodology change
EA Momentum (Zoro/MonotaRO)EA +11.5% daily CC (Q3) EA +13.2% daily CC (Q4) EA +15.3% daily CC (Q1); Zoro +18.4%, MonotaRO +13.6% (local), EA op margin 8.7%
End-market Health“Slow, steady” demand (Q3) “Stable yet muted” demand (Q4) Muted demand; government relatively weak; contractors/healthcare strong; aerospace strong
Sequential Outlook——Q2 sales “just north of ~$4.5B”; op margin ~15%; April daily CC +5.5%

Management Commentary

  • CEO on execution and tariffs: “While tariffs are certainly a topic of conversation… our scale, and the depth of our sourcing know-how position Grainger to effectively navigate the situation… offering market-relevant pricing while targeting price cost neutrality over time.”
  • CFO on Q1 performance: “Operating margins… 15.6% for the quarter… above our communicated first quarter expectations, largely due to the timing of certain SG&A items.”
  • CFO on tariff pricing cadence: “Earlier today, we took initial pricing actions… These initial pricing actions only apply to a small portion of our products… Our goal… [is] price/cost neutrality over time.”
  • CFO on early Q2 trends: “Preliminary April sales are up approximately 5.5% on a daily constant currency basis… we expect total company sales for the second quarter to be just north of $4.5 billion… targeting second quarter operating margin… at or near 15%.”

Q&A Highlights

  • EA profitability sustainability: Zoro’s improved repeat rates and scale support sustained leverage; expense growth need not track revenue growth .
  • Tariff impact sizing: Near-term net price impact estimated at ~1%–1.5%; magnitude depends on supplier cost actions and duration; aiming for price/cost neutrality while monitoring demand elasticity .
  • Sourcing flexibility & private label vs national brands: Some categories lack near-term alternatives to China; economics may shift mix toward national brands where private label becomes uncompetitive at elevated tariff levels; case-by-case approach .
  • Outgrowth disclosure: Quarterly disclosure paused given distorted IP benchmark; focus shifts to annual view as trade policy noise persists .
  • End-market and government commentary: Government softer early in the year; manufacturing mixed with aerospace strong; April showed best month year-to-date .

Estimates Context

  • Q1 2025 vs S&P Global consensus: EPS beat ($9.86 vs $9.51*) and revenue essentially in line/slight miss ($4.306B vs $4.317B*). Management reaffirmed FY25 guidance, implying limited need for estimate changes beyond modest tariff-related pricing/demand offsets .
  • Q2 setup: Management’s “just north of ~$4.5B” sales outlook is broadly consistent with S&P Global revenue consensus of ~$4.53B*; operating margin near ~15% suggests EPS trajectory will depend on price/cost timing and SG&A cadence .
    Note: Estimates marked with * are from S&P Global.

Key Takeaways for Investors

  • Reaffirmed FY25 guide with healthy profitability bands and robust cash generation signals stability despite tariff uncertainty .
  • EA segment is a structural growth and margin lever (Zoro +18% growth; EA op margin 8.7%), offsetting HTS softness and supporting multi-year mix benefits .
  • Tariff strategy is measured: small initial price actions; broader pass-through contingent on supplier cost clarity; management targets price/cost neutrality over time—watch for elasticity in 2H .
  • April trend and Q2 outlook indicate slight sequential improvement (sales >$4.5B; op margin ~15%), but seasonal gross margin step-down and shifted SG&A expenses will matter intra-quarter .
  • Dividend raised 10% (to $2.26/share) and buyback pace support TSR; balance sheet and cash flow provide flexibility for continued returns and investment .
  • Disclosure pivot on outgrowth reduces quarterly noise; focus shifts to sustainable share gains via service, product information advantage, and pricing analytics .
  • Near-term catalysts: tariff policy clarity, supplier pricing cadence, EA momentum sustainability, and proof of price/cost neutrality without demand erosion.

References: Q1’25 8-K/press release and financials ; Q1’25 earnings call transcript ; dividend PR ; prior quarters Q3’24 and Q4’24 8-Ks .