Executive Summary

Q3 2025 delivered sales of $4.657B (+6.1% YoY) and adjusted diluted EPS of $10.21 (+3.4% YoY); reported EPS was $6.12 due to a $196M non-cash loss tied to the planned UK exit (Cromwell divestiture and Zoro UK closure) .
Results were modestly ahead of internal expectations on gross margin as LIFO headwinds came in lighter; adjusted operating margin was 15.2% (-40 bps YoY) with High-Touch margin pressure offset by leverage in Endless Assortment .
Versus S&P Global consensus, GWW posted a beat on EPS, revenue, and EBITDA for Q3 2025; management narrowed FY25 adjusted EPS to $39.00–$39.75, raised margin guidance, and trimmed the top-line range to reflect the UK exit, FX, and government shutdown impacts. Bolded below: consensus beats/misses and guidance surprises .
Catalysts: portfolio focus (UK exit), price actions (September/November) to offset tariffs, easing LIFO pressure into 2026, and strong Endless Assortment momentum; near-term public sector softness from the government shutdown and October hurricane lap were called out .

What Went Well and What Went Wrong

What Went Well
- Endless Assortment sales +18.2% YoY (14.6% daily CC) with operating margin up to 9.8%; MonotaRO margin at 13.2% and Zoro margin at 5.8% as marketing efficiency and repeat purchase rates improved .
- Gross margin finished ahead of prior expectations due to lower-than-expected LIFO charges; adjusted EPS rose to $10.21 (+3.4% YoY) .
- Strong cash generation: $597M CFO and $339M FCF; $399M returned via dividends and buybacks .
- Management quote: “We delivered results in-line with our expectations… through strong execution, industry-leading service and innovative capabilities” .
- Management emphasis on AI: “Tech and AI will continue to be an ongoing focus… leveraging our proprietary data… to create a more seamless user experience” .
What Went Wrong
- High-Touch Solutions – N.A. gross margin fell to 41.1% (-50 bps YoY) from tariff-related price/cost timing and LIFO valuation headwinds; adjusted operating margin for HTS was 17.2% (-40 bps YoY) .
- Reported EPS down 38.0% YoY to $6.12 due to a $196M non-cash impairment tied to the UK exit; reported operating margin fell to 11.0% (-460 bps YoY) .
- Public sector headwinds: October daily CC growth started ~1% given a prior-year hurricane lap ($30–$40M) and government shutdown; shutdown impact can be “a point or more per day” on total company sales if prolonged .

Financial Results

Metric	Q3 2024	Q2 2025	Q3 2025
Revenue ($USD Billions)	$4.388	$4.554	$4.657
Diluted EPS (Reported) ($USD)	$9.87	$9.97	$6.12
Diluted EPS (Adjusted) ($USD)	$9.87	$9.97	$10.21
Gross Margin (%)	39.2%	38.5%	38.6%
Operating Margin (Reported, %)	15.6%	14.9%	11.0%
Operating Margin (Adjusted, %)	15.6%	14.9%	15.2%
Effective Tax Rate (Reported, %)	24.8%	23.2%	34.7%
Effective Tax Rate (Adjusted, %)	24.8%	23.2%	24.8%

Q3 2025 vs Wall Street Consensus (S&P Global)

Metric	Consensus*	Actual	Beat/(Miss)
Primary EPS ($USD)	$9.95*	$10.21	+$0.26*
Revenue ($USD Billions)	$4.643*	$4.657	+$0.014B*
EBITDA ($USD Billions)	$0.739*	$0.772	+$0.033B*

Values retrieved from S&P Global.

Segment Performance

Segment	Sales Growth YoY	Daily CC Growth	Gross Margin	Operating Margin	Notes
High-Touch Solutions – N.A.	+3.4%	+3.4%	41.1%	17.2%	Tariff-related price/cost timing and LIFO headwinds; price pass actions in Sep/Nov
Endless Assortment	+18.2%	+14.6%	n/a	9.8%	MonotaRO margin 13.2%; Zoro margin 5.8%; strong marketing efficiency and retention

Operating & Capital Efficiency KPIs

KPI	Q3 2025
Cash from Operations ($USD Millions)	$597
Capital Expenditure ($USD Millions)	$258
Free Cash Flow ($USD Millions)	$339
Capital Returned ($USD Millions)	$399 (dividends + repurchases)
Dividend Declared	$2.26 per share; payable Dec 1, 2025; record Nov 10, 2025

Non-GAAP context: Q3 2025 adjusted results exclude the non-cash loss tied to the UK exit, primarily Cromwell divestiture, recorded in SG&A; diluted adjusted EPS adds $4.09 to reported to reach $10.21 .

Guidance Changes

Metric	Period	Previous (Aug 1, 2025)	Current (Oct 31, 2025)	Change
Net Sales ($B)	FY 2025	$17.9–$18.2	$17.8–$18.0	Lowered
Sales Growth (%)	FY 2025	4.4%–5.9%	3.9%–4.7%	Lowered
Daily Organic CC Sales Growth (%)	FY 2025	4.5%–6.0%	4.4%–5.1%	Lowered
Gross Profit Margin (%)	FY 2025	38.6%–38.9%	38.9%–39.1%	Raised
Adjusted Operating Margin (%)	FY 2025	14.7%–15.1%	15.0%–15.2%	Raised
Adjusted Diluted EPS ($)	FY 2025	$38.50–$40.25	$39.00–$39.75	Narrowed (midpoint unchanged)
Operating Cash Flow ($B)	FY 2025	$2.05–$2.25	$2.10–$2.20	Narrowed (midpoint unchanged)
CapEx (cash basis, $B)	FY 2025	$0.55–$0.65	$0.625–$0.675	Raised
Share Buyback ($B)	FY 2025	$1.05–$1.15	$1.05–$1.15	Maintained
Effective Tax Rate (%)	FY 2025	~23.8%	~23.8%	Maintained
HTS–N.A. Adjusted Op Margin (%)	FY 2025	16.5%–16.9%	16.9%–17.0%	Raised
Endless Assortment Adjusted Op Margin (%)	FY 2025	9.2%–9.6%	9.2%–9.5%	Lowered upper bound

Management noted updated ranges reflect known tariff impacts, FX updates, and removing UK contributions; margin improvement from better price/cost and LIFO timing offsets the trimmed top-line .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 & Q2 2025)	Current Period (Q3 2025)	Trend
AI/Technology initiatives	Continued innovation and capabilities highlighted; commitment to technology-driven customer experience	Explicit focus on leveraging proprietary data with AI to enhance customer and internal productivity	Building momentum
Tariffs & Price/Cost & LIFO	Q2: tariff-related factors pressured gross margin; lowered FY gross margin guidance; price/cost negative	LIFO headwinds persisted but were lighter than expected; price actions in Sep and Nov to align timing; expect stabilization around ~39% gross margin as inflation cools	Improving alignment
Government shutdown & hurricane lap	Not highlighted in Q1/Q2	October daily CC growth slow (~1%) due to 2024 hurricane lap ($30–$40M) and shutdown (impact “a point or more per day”); last two weeks ~4%–5% daily CC	Temporary headwinds
Portfolio focus (UK exit)	No changes	Agreement to divest Cromwell; proposed closure of Zoro UK; one-time non-cash after-tax loss $190–$205M (vast majority in Q3)	Strategic refocus
Segment performance	Q1: EA +10.3% daily CC +15.3%; HTS daily CC +1.9%	Q2: EA +19.7% (daily CC +16.3%); HTS +2.8% daily CC	Q3: EA +18.2% (daily CC +14.6%); HTS +3.4%; EA margin up to 9.8%
Private label competitiveness	Not highlighted	Some subset faces tighter spread vs national brands under tariffs; active management of pricing strategy	Mixed pressure

Management Commentary

Strategy and execution: “We delivered results in-line with our expectations for the quarter… through strong execution, industry-leading service and innovative capabilities” — D.G. Macpherson, CEO .
Margin/LIFO dynamics: “Gross margin finished ahead of… expectations on a less-than-expected LIFO impact… without this LIFO impact, our operating margin would have increased year over year” — CFO commentary .
Pricing actions: “Initial pricing actions back in May… September increase was much broader… On November 1… taking another [increase]… to better align price cost timing” .
Long-term framework: “We remain confident we can… stabilize total company gross margins around 39%… grow SG&A slower than sales… drive attractive returns” .
Portfolio focus: “We’ve entered into an agreement to sell our UK-based Cromwell business… focused entirely on growing our North America and Japanese businesses” .

Q&A Highlights

Pricing cadence: September 1 broad increase; November 1 incremental actions across contracts and non-contract business in HTS to align price/cost timing; Zoro U.S. exhibiting strong price inflation on strategic changes .
LIFO impact sizing/timing: Implied LIFO headwind ~70–90 bps on gross margin; expected to persist into 2026 H1, then dissipate as inflation cools and price/cost normalizes .
Government shutdown effect: “Every day, a point or more impact on our total business”; if prolonged, magnitude increases; hurricane lap ~$30–$40M in Oct last year .
UK exit financials: Q4 revenue impact ~$40M (post-close window); annualized consolidated operating margin uplift ~20 bps once UK exit completes .
Inventory accounting: Considered FIFO but change would require a significant cash tax payment; not switching currently .
Customer/verticals: Warehousing down mid-teens due to one large contract adjustment; mid-size customer growth opportunity remains, with softer prior-year comps influencing YoY rates .

Estimates Context

Q3 2025 actual vs consensus: EPS $10.21 vs $9.95*; revenue $4.657B vs $4.643B*; EBITDA $0.772B vs $0.739B* — all beats. Target price consensus mean $1,054.6*; consensus recommendation text not available .
Q4 2025 forward consensus: EPS $9.46*; revenue $4.408B*; EBITDA $0.702B*; management implied Q4 daily organic CC ~4% at midpoint, largely price-driven in HTS .
Values retrieved from S&P Global.

Key Takeaways for Investors

Q3 quality: Underlying operating performance solid; adjusted margins and EPS resilient despite tariff/LIFO noise; Endless Assortment remains a growth/margin engine .
Consensus beats: Delivered a broad beat on EPS, revenue, and EBITDA; keep an eye on estimate revisions and margin trajectory as price actions flow and LIFO impact moderates.
Values retrieved from S&P Global.
Guidance mix-shift: FY25 sales trimmed for UK exit/FX/shutdown; margins raised — a constructive signal; adjusted EPS range narrowed with unchanged midpoint .
Near-term headwinds: Government shutdown and hurricane lap weigh on Q4 run-rate; public sector demand may only partially catch up after resolution .
Pricing power: September/November actions indicate ability to pass costs; expect further pricing cycles in 2026 given supplier cost trajectories .
Strategic focus: UK exit simplifies portfolio to North America and Japan; should improve consolidated margins (~20 bps annual uplift on completion) and sharpen execution .
Medium-term thesis: As inflation cools, LIFO drag normalizes and gross margin stabilizes around ~39%; EA growth in the teens with improving drop-through supports multi-year EPS compounding .

W.W. GRAINGER, INC. (GWW)·Q3 2025 Earnings Summary