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WG

W.W. GRAINGER, INC. (GWW)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 sales were $4.233B (+5.9% YoY; +4.7% daily, organic constant currency), operating margin expanded to 15.0% (+110 bps reported; +40 bps adjusted), and diluted EPS rose to $9.71 (+23.1% reported; +16.6% adjusted). Management characterized results as “roughly in line with expectations.”
  • Segment performance: High-Touch Solutions N.A. +4.0% sales (+3.0% daily, organic CC) with gross margin +90 bps YoY; Endless Assortment +15.1% sales (+13.2% daily CC), operating margin up 80 bps to 8.6%.
  • 2025 guidance introduced: Daily constant currency sales +4.0% to +6.5%; EPS $39.00–$41.50; operating margin 15.1%–15.5%; tax rate ~23.8%; segment OM: HTS N.A. 17.0%–17.4%, EA 8.5%–9.0%.
  • Cash generation/returns: Q4 operating cash flow $428M, CapEx $258M (bulk warehouse purchase), FCF $170M; returned $562M via dividends and repurchases. A $2.05 quarterly dividend was declared on Jan 29, 2025.
  • Near-term catalysts: narrative pivot to volume-only market outgrowth tracking, continued AI/data-driven efficiency initiatives, and EA momentum; management expects minimal pricing inflation in 2025 and a muted MRO backdrop, implying execution will drive outgrowth.

What Went Well and What Went Wrong

What Went Well

  • Demand resilience and execution delivered margin expansion: Q4 gross margin 39.6% (+50 bps YoY) and operating margin 15.0% (+110 bps reported; +40 bps adjusted). “Our team delivered strong performance… deepened customer relationships and advanced our capabilities.” — D.G. Macpherson.
  • Endless Assortment accelerating with operating leverage: segment operating margin up 80 bps to 8.6%; MonotaRO enterprise customer growth +29%.
  • Technology/AI initiatives enhancing customer experience and operations (KeepStock computer vision, ML for inventory planning, generative AI in contact centers). “We are just scratching the surface… next-gen tools to develop advantage across the business.” — D.G. Macpherson.

What Went Wrong

  • Muted demand and December softness: daily sales +4.2% (+4.7% daily, organic CC), with holiday timing/customer shutdowns ~50 bps headwind and hurricane benefit ~80 bps; management sees a “slow start” to Q1 due to FX and one fewer selling day.
  • Minimal price inflation expected in 2025; gross margin seasonality tailwind limited vs usual pattern; HTS gross margin tailwind from lapping prior-year E&O is non-recurring.
  • Measurement dislocation in market outgrowth; management shifts focus to volume-only outgrowth and expects low-end of 400–500 bps range in 2025 as they pace seller expansion.

Financial Results

MetricQ2 2024Q3 2024Q4 2024
Net Sales ($USD Billions)$4.312 $4.388 $4.233
Diluted EPS ($)$9.51 (reported) $9.87 $9.71
Gross Profit Margin (%)39.3% 39.2% 39.6%
Operating Margin (%)15.1% (reported); 15.4% (adjusted) 15.6% 15.0%

Segment performance and margins:

SegmentQ2 2024Q3 2024Q4 2024
High-Touch Solutions N.A. Sales Growth (Daily, Organic CC)+3.7% +2.5% +3.0%
High-Touch Solutions N.A. Gross Margin (%)41.7% 41.6% +90 bps YoY (to ~42.3%)
High-Touch Solutions N.A. Operating Margin (%)N/AN/A17.0%
Endless Assortment Sales Growth (Daily CC)+11.7% +11.5% +13.2%
Endless Assortment Operating Margin (%)N/AN/A8.6% (+80 bps YoY)

KPIs:

KPIQ2 2024Q3 2024Q4 2024
Operating Cash Flow ($USD Millions)$411 $611 $428
CapEx ($USD Millions)$76 $88 $258
Free Cash Flow ($USD Millions)$335 $523 $170
Share Repurchases ($USD Millions)$244 $227 $462
Dividend per Share ($)N/AN/A$2.05 (declared Jan 29, 2025)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net Sales ($)FY 2024$17.1–$17.3B (10/31/24) Actual $17.168B Met/narrowed-to-actual
Diluted EPS ($)FY 2024$38.65–$39.35 (10/31/24) Actual $38.71 (reported); $38.96 (adjusted) Within range
Gross Profit Margin (%)FY 202439.3%–39.4% (10/31/24) Actual 39.4% Within range
Operating Margin (%)FY 202415.4%–15.6% (10/31/24) Actual 15.4% (reported); 15.5% (adjusted) Within range
Operating Cash Flow ($)FY 2024$2.15–$2.25B (10/31/24) Actual $2.111B Slightly below range
Net Sales ($)FY 2025N/A$17.6–$18.1B New
Daily CC Sales Growth (%)FY 2025N/A+4.0%–+6.5% New
Gross Profit Margin (%)FY 2025N/A39.1%–39.4% New
Operating Margin (%)FY 2025N/A15.1%–15.5% New
Diluted EPS ($)FY 2025N/A$39.00–$41.50 New (includes ~$20M net interest headwind)
Effective Tax Rate (%)FY 2025N/A~23.8% New
Operating Cash Flow ($)FY 2025N/A$2.05–$2.25B New
CapEx ($)FY 2025N/A$0.45–$0.55B New
Share Buyback ($)FY 2025N/A$1.15–$1.25B New
Segment OM (%) HTS N.A.FY 2025N/A17.0%–17.4% New
Segment OM (%) Endless AssortmentFY 2025N/A8.5%–9.0% New
Segment Sales Growth (Daily CC) HTS N.A.FY 2025N/A+2.5%–+4.5% (call) New (call)
Segment Sales Growth (Daily CC) Endless AssortmentFY 2025N/A+11%–+15% (call) New (call)
Dividend per Share ($)Q1 2025N/A$2.05 declared (payable Mar 1, 2025) New

Earnings Call Themes & Trends

TopicQ2 2024 Mentions (Q-2)Q3 2024 Mentions (Q-1)Q4 2024 Current PeriodTrend
AI/Technology initiativesFocus on flawless experience; stable margins; no AI specifics in PR Continued strong execution; narrowed guidance Detailed AI/ML examples in KeepStock, inventory ML models, gen AI in contact centers; expanding data assets (PIM/KIM) Expanding deployment and specificity
Supply chain capacityDistribution center network expansion; CapEx; investments Stable service; ongoing DC projects New Houston-area DC construction, Northwest DC progress, ~$80M bulk warehouse purchase in IL Capacity ramping
Tariffs/MacroMuted demand backdrop; guidance narrowed Slow, steady demand; narrowed guidance Minimal pricing inflation assumed; no tariff impacts included; sourcing footprint diversified (60–70% China; moves to MX/VN/IN) Monitoring; excluded from guide
Pricing/InflationGP margin flat YoY; adjusted OM down 40 bps GP margin -10 bps YoY; OM -30 bps Price/cost roughly neutral; GP 39.6% (+50 bps YoY); minimal 2025 pricing inflation expected Stabilizing; low inflation
Market outgrowth measurementN/AN/AShift to volume-only outgrowth; targeting low end of 400–500 bps in 2025 due to pacing seller expansion Framework refined
Segment mixEA growth strong (daily CC +11.7%) EA daily CC +11.5% EA daily CC +13.2%, OM +80 bps; HTS GM +90 bps EA accelerating; HTS margins favorable

Management Commentary

  • “Amidst a stable, yet muted demand environment throughout 2024, our team delivered strong performance… we deepened our customer relationships and advanced our capabilities.” — D.G. Macpherson.
  • “We are leveraging proprietary data… developing homegrown machine learning, large language models… to add incremental value.” — D.G. Macpherson.
  • “High-Touch Solutions gross margin finished the quarter at a strong ~42.3%, up 90 bps… price/cost for the quarter was roughly neutral.” — Deidra Merriwether.
  • “We anticipate minimal pricing inflation for the year… In EA, we anticipate operating margin… 8.5% to 9%.” — Deidra Merriwether.
  • “We will be focusing our market measurement on just the volume component going forward… continue to target 400 to 500 bps of average annual outgrowth.” — Deidra Merriwether.

Q&A Highlights

  • Volume-only outgrowth framework: Management expects low end of 400–500 bps in 2025, pacing seller expansion to avoid execution risk; prior dislocation largely in price component.
  • Macro/tariffs: 2025 MRO volume assumed flat to down ~1.5%; no tariff impacts embedded; will adjust as clarity emerges.
  • Pricing/gross margin: Expect price/cost neutrality; typical Q1 GP seasonality muted given low cost inflation; Q1 margins near bottom of FY range.
  • Incremental flow-through: If market improves, incremental margins “north of 20%.”
  • Sourcing mix and tariff response: ~60–70% China, with diversification to Mexico/Vietnam/India; aim to pass through tariffs while maintaining margins as competitive conditions allow.
  • Capital allocation: OCF $2.05–$2.25B in 2025; CapEx $450–$550M; buybacks $1.15–$1.25B; dividend increases expected high single-to-low double-digit annually.

Estimates Context

  • S&P Global consensus estimates could not be retrieved due to a daily request limit error; therefore, quantified EPS/revenue beats/misses versus consensus are unavailable at this time. Management indicated the quarter was “roughly in line with expectations.”
  • If needed, we can refresh S&P Global estimates later for explicit beat/miss quantification once access is restored.

Key Takeaways for Investors

  • Margin execution remains strong: Q4 GP 39.6% (+50 bps YoY) and OM 15.0%; HTS gross margin favorable (+90 bps) and EA OM +80 bps, with 2025 OM guide 15.1%–15.5%.
  • Guidance points to steady growth: Daily CC sales +4.0%–+6.5%, EPS $39.00–$41.50; minimal pricing inflation assumed; tax rate normalizes to ~23.8%.
  • EA continues to be a growth lever (daily CC +13.2% in Q4); operating leverage expected to continue in 2025 (OM 8.5%–9.0%).
  • Volume-only outgrowth focus should reduce measurement noise; management still targets 400–500 bps over time, expecting low end in 2025 as they calibrate seller expansion.
  • AI/data investments are tangible and scaling (KeepStock computer vision, inventory ML, gen AI in service), supporting differentiation and operational efficiency.
  • Near-term seasonality: expect softer Q1 sales/margins due to FX and one fewer selling day; margins ramp thereafter. Traders should anticipate atypical Q1 pattern.
  • Capital returns intact: 2025 buybacks $1.15–$1.25B; dividend of $2.05/share declared; OCF guided $2.05–$2.25B.