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WG

W.W. GRAINGER, INC. (GWW)·Q2 2025 Earnings Summary

Executive Summary

  • Q2 2025 delivered modest top-line growth and mixed profitability: revenue $4.554B (+5.6% YoY), diluted EPS $9.97 (+4.8% YoY), operating margin 14.9% (-20 bps YoY) as LIFO inventory revaluation and price-cost timing from tariffs pressured gross margins to 38.5% (-80 bps YoY) .
  • Versus Street: revenue beat by ~$27M (+0.6%), EPS missed by ~$0.10 (-1.0%), EBITDA was roughly in-line (small miss) as tariff-related LIFO accounting created transitory headwinds; management flagged gross margin recovery as pricing actions flow through * *.
  • Guidance updated lower on margins and EPS: FY25 gross margin cut to 38.6–38.9% (from 39.1–39.4%), operating margin to 14.7–15.1% (from 15.1–15.5%), EPS to $38.50–$40.25 (from $39.00–$41.50); net sales range nudged up on pricing/FX; CapEx raised $100M, buybacks trimmed $100M .
  • Call catalysts: September price cycle to pass incremental tariff costs; Q3 operating margin guided to ~14.5% with preliminary July daily constant-currency sales “north of 6%”; expectation that margins improve into Q4 as pricing catches up to costs .

What Went Well and What Went Wrong

What Went Well

  • Endless Assortment strength: segment revenue +19.7% (+16.3% daily CC), operating margin up 200 bps to 9.9%; Zoro +20% revenue, margin +380 bps YoY to 5.8%; MonotaRO margin 13.2% .
  • Resilient EPS and cash returns despite margin pressure: diluted EPS $9.97; $377M CFO, $202M FCF; $336M returned via dividends/repurchases .
  • Customer-first pricing cadence and strategic clarity: “We elected not to pass off-cycle increases” to support stability; management reiterated price competitiveness and over-time price-cost neutrality goals .

What Went Wrong

  • Gross margin compression (-80 bps YoY to 38.5%) driven largely by LIFO revaluation and tariff-related price-cost timing in High-Touch N.A.; HTS gross margin 41.0% (-70 bps) .
  • Operating margin contracted to 14.9% (-20 bps YoY reported; -50 bps YoY adjusted) as HTS deleverage outweighed EA leverage; FY25 operating margin guidance cut to 14.7–15.1% .
  • EPS guidance lowered to $38.50–$40.25 due to tariff-related impacts and LIFO headwinds; CapEx increased (DC investments) and buybacks reduced .

Financial Results

MetricQ2 2024Q1 2025Q2 2025
Net Sales ($USD Billions)$4.312 $4.306 $4.554
Operating Earnings ($USD Millions)$649 $672 $678
Gross Margin (%)39.3% 39.7% 38.5%
Operating Margin (%)15.1% 15.6% 14.9%
Diluted EPS ($)$9.51 $9.86 $9.97
Effective Tax Rate (%)22.9% 23.9% 23.2%

Segment and business performance (Q2 2025)

Segment / BusinessSales Growth (Reported)Daily, CC Sales GrowthGross MarginOperating Margin
High-Touch Solutions – N.A.+2.5% +2.8% 41.0% (−70 bps YoY) 16.6%
Endless Assortment (Segment)+19.7% +16.3% +30 bps vs PY 9.9% (+200 bps YoY)
Zoro U.S. (EA)+20% revenue N/AN/A5.8% (+380 bps YoY)
MonotaRO (EA)+16.4% (local days, local CC) N/AN/A13.2%

Key KPIs (Q2 2025)

KPIValue
Cash from Operations ($USD Millions)$377
Capital Expenditure ($USD Millions)$175
Free Cash Flow ($USD Millions)$202
Shareholder Returns ($USD Millions)$336 (dividends + buybacks)
Diluted Shares (Millions)48.1

Versus Wall Street consensus (S&P Global)

MetricConsensus*ActualSurprise ($)Surprise (%)
Revenue ($USD Billions)$4.527*$4.554 +$0.027+0.6%
Diluted EPS ($)$10.07*$9.97 −$0.10−1.0%
EBITDA ($USD Millions)$743.8*$742.0*−$1.8−0.25%

Note: Values with an asterisk (*) retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious Guidance (May 1, 2025)Updated Guidance (Aug 1, 2025)Change
Net SalesFY 2025$17.6–$18.1B $17.9–$18.2B Raised
Sales GrowthFY 20252.7%–5.2% 4.4%–5.9% Raised
Daily, CC Sales GrowthFY 20254.0%–6.5% 4.5%–6.0% Raised (midpoint)
Gross Profit MarginFY 202539.1%–39.4% 38.6%–38.9% Lowered
Operating MarginFY 202515.1%–15.5% 14.7%–15.1% Lowered
Diluted EPSFY 2025$39.00–$41.50 $38.50–$40.25 Lowered
Operating Cash FlowFY 2025$2.05–$2.25B $2.05–$2.25B Maintained
CapEx (cash basis)FY 2025$0.45–$0.55B $0.55–$0.65B Raised
Share BuybackFY 2025$1.15–$1.25B $1.05–$1.15B Lowered
Effective Tax RateFY 2025~23.8% ~23.8% Maintained
Segment OM – HTS N.A.FY 202517.0%–17.4% 16.5%–16.9% Lowered
Segment OM – Endless AssortmentFY 20258.5%–9.0% 9.2%–9.6% Raised
DividendQ3 2025N/A$2.26/share payable Sep 1; record Aug 11 Announced

Earnings Call Themes & Trends

TopicQ4 2024 (Prior)Q1 2025 (Prior)Q2 2025 (Current)Trend
AI/technology initiativesDetailed pilots: ML for DC planning; gen-AI in call centers; computer vision for KeepStock Continued investment; tech as long-term advantage Reiterated tech/data leverage to drive efficiencies and service Improving/ongoing
Supply chain & DC investmentsNew DC builds (Houston, Northwest), $80M IL bulk facility; extend service lead Stable guidance on CapEx $0.45–$0.55B CapEx raised $100M to accelerate DC network investments Increasing investment
Tariffs & price-costMinimal price in FY25 framework, neutrality over time; no tariff impact in guide Initial May price actions on direct imports; expect 1–1.5% run-rate price; elasticity read pending LIFO and timing headwinds dominate; September cycle to add 2–2.5% run-rate price; margins to recover over time Near-term headwinds, improving with pricing
Gross margin & LIFOQ4 GM 39.6%; price/cost neutral; mix/freight favorability GM +30 bps to 39.7%; price/cost roughly neutral GM 38.5% (−80 bps YoY); majority impact from LIFO (~80 bps) and timing; without LIFO GM flat YoY Down in Q2, recovery expected Q4 onward
Segment mix & EA momentumEA OM +80 bps to 8.6%; Zoro ramp; MonotaRO strong EA revenue +10.3% reported; OM +80 bps to 8.7% EA revenue +19.7%; OM +200 bps to 9.9%; Zoro +20% Strengthening
Government/customer trendsGovernment (state/local strong in Q4); military solid Government softer to start year; manufacturing mixed Non-military federal soft; military good; state/local mixed Mixed/stable

Management Commentary

  • “Our headline results for the quarter finished largely in-line with communicated expectations, although performance was impacted by some tariff-related factors… Even amid ongoing macroeconomic uncertainty, our commitment to our customers remains steadfast.” — D.G. Macpherson, CEO .
  • “Without this LIFO impact, our operating margin would have been flat year over year… pricing will start to take hold and that LIFO impact normalizes; our gross margin starts to recover and improve.” — CFO commentary .
  • “September pricing change… expected to result in net annualized incremental price of 2 to 2.5% on a run rate basis for the high-touch business… to deliver close to 1% price in total for the high-touch business [FY25].” — CFO .
  • “We remain focused on… two core pricing tenets: to remain price competitive and to achieve price-cost neutrality over time.” — CFO .

Q&A Highlights

  • LIFO impact magnitude and trajectory: Majority of gross margin pressure (~80 bps in HTS) due to LIFO; EPS YoY would be “north of six” without LIFO; price-cost timing smaller and expected to unwind into 2026 .
  • Pricing cadence and customer stability: Management chose normal September cycle over off-cycle increases to support customer stability, expecting realization to normalize as peers also take price .
  • Q3 preview and margin path: July daily CC sales “north of 6%”; Q3 operating margin guided to ~14.5%; margin to improve into Q4 as price actions catch up .
  • Zoro SKU pruning and assortment optimization: Removed ~1.1M low-volume SKUs to improve search/experience; no financial impact; ongoing optimization with net assortment growth expected over time .
  • 2026 gross margin outlook: If tariff schedule holds, GM expansion back toward ~39% seen as “very likely” in 2026 .

Estimates Context

  • Revenue beat and EPS miss: Q2 revenue $4.554B beat consensus $4.527B by $27M (+0.6%); EPS $9.97 missed $10.07 by ~$0.10 (−1.0%); EBITDA ~$742M vs $744M consensus (−0.25%), reflecting LIFO/timing headwinds concentrated in HTS * *.
  • Implication: Street models likely cut H2 gross margin and EPS, partially offset by September pricing and EA strength; FY25 consensus EPS $39.48* sits within new guide ($38.50–$40.25), suggesting limited magnitude of estimate resets barring tariff escalations *.

Note: Values with an asterisk (*) retrieved from S&P Global.

Key Takeaways for Investors

  • Near-term margin pressure is accounting/timing-driven: LIFO revaluation and deferred pricing created the Q2 compression; management expects sequential margin dip in Q3 (~14.5% OM) and recovery into Q4 as pricing actions take hold .
  • Endless Assortment is an offsetting profit engine: EA revenue +19.7% and OM +200 bps to 9.9% provide leverage while HTS absorbs tariff headwinds; Zoro momentum (pricing optimization, retention) and MonotaRO efficiency underpin segment strength .
  • FY25 guide reset lowers margin/EPS but raises sales: Gross margin and OM reduced; EPS lowered; net sales range raised and CapEx accelerated to support DC capacity—signals long-term investment over buybacks (trimmed) .
  • Trading setup: Mixed print (top-line beat, EPS miss) with explicit Q3 margin step-down and tariff/LIFO narrative likely overhang near-term; a catalyst is September pricing realization and narrative shift toward improving price-cost into Q4 .
  • Medium-term thesis: If tariff schedule stabilizes, 2026 path to ~39% gross margin appears reasonable; HTS share gains plus EA profitability trajectory support durable EPS growth once pricing fully offsets cost inflation .
  • Capital allocation remains balanced: Dividend announced at $2.26/share for Q3; CapEx up to accelerate supply chain; buybacks modestly trimmed—consistent with investing for scale/service advantage .
  • Watch items: Tariff elasticity and competitive price actions, LIFO magnitude, HTS September pricing realization, EA growth sustainability as comps toughen, and macro MRO demand staying muted as management anticipates .
Sources: Company 8-K and press releases; Q2 2025 earnings call transcript; prior quarter materials as cited.