W.W. Grainger (GWW)

Maintenance and repair supplier W.W. Grainger (NYSE:GWW) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 1.7% year on year to $4.31 billion. On the other hand, the company’s full-year revenue guidance of $17.85 billion at the midpoint came in 0.7% below analysts’ estimates. Its GAAP profit of $9.86 per share was 4% above analysts’ consensus estimates.

Company Overview

Founded as a supplier of motors, W.W. Grainger (NYSE:GWW) provides maintenance, repair, and operating (MRO) supplies and services to businesses and institutions.

Supply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Maintenance and repair distributors that boast reliable selection and quickly deliver products to customers can benefit from this theme. While e-commerce hasn’t disrupted industrial distribution as much as consumer retail, it is still a real threat, forcing investment in omnichannel capabilities to serve customers everywhere. Additionally, maintenance and repair distributors are at the whim of economic cycles that impact the capital spending and construction projects that can juice demand.

Competitors in the operating (MRO) supplies industry include Fastenal (NASDAQ:FAST), MSC Industrial Direct (NYSE:MSM), and HD Supply (NASDAQ:HDS).

A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, W.W. Grainger grew its sales at a decent 8.1% compounded annual growth rate. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. W.W. Grainger’s recent performance shows its demand has slowed as its annualized revenue growth of 4.9% over the last two years was below its five-year trend.

We can better understand the company’s sales dynamics by analyzing its organic revenue, which strips out one-time events like acquisitions and currency fluctuations that don’t accurately reflect its fundamentals. Over the last two years, W.W. Grainger’s organic revenue averaged 5.9% year-on-year growth. Because this number aligns with its normal revenue growth, we can see the company’s core operations (not acquisitions and divestitures) drove most of its results.

This quarter, W.W. Grainger grew its revenue by 1.7% year on year, and its $4.31 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 5.7% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and implies its newer products and services will not accelerate its top-line performance yet. At least the company is tracking well in other measures of financial health.

W.W. Grainger’s unit economics are great compared to the broader industrials sector and signal that it enjoys product differentiation through quality or brand. As you can see below, it averaged an excellent 38.2% gross margin over the last five years. Said differently, roughly $38.20 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

W.W. Grainger’s gross profit margin came in at 39.7% this quarter, in line with the same quarter last year. On a wider time horizon, the company’s full-year margin has remained steady over the past four quarters, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

W.W. Grainger has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 14%. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Looking at the trend in its profitability, W.W. Grainger’s operating margin rose by 5.1 percentage points over the last five years, as its sales growth gave it immense operating leverage.

This quarter, W.W. Grainger generated an operating profit margin of 15.6%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

W.W. Grainger’s EPS grew at an astounding 22.8% compounded annual growth rate over the last five years, higher than its 8.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of W.W. Grainger’s earnings can give us a better understanding of its performance. As we mentioned earlier, W.W. Grainger’s operating margin was flat this quarter but expanded by 5.1 percentage points over the last five years. On top of that, its share count shrank by 10.2%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For W.W. Grainger, its two-year annual EPS growth of 9.3% was lower than its five-year trend. This wasn’t great, but at least the company was successful in other measures of financial health.

In Q1, W.W. Grainger reported EPS at $9.86, up from $9.62 in the same quarter last year. This print beat analysts’ estimates by 4%. Over the next 12 months, Wall Street expects W.W. Grainger’s full-year EPS of $38.95 to grow 6.1%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

W.W. Grainger has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.2% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that W.W. Grainger’s margin was unchanged during that time, showing its long-term free cash flow profile is stable.

W.W. Grainger’s free cash flow clocked in at $521 million in Q1, equivalent to a 12.1% margin. This cash profitability was in line with the comparable period last year and above its five-year average.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

W.W. Grainger’s five-year average ROIC was 35.5%, placing it among the best industrials companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, W.W. Grainger’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

W.W. Grainger reported $666 million of cash and $2.68 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.91 billion of EBITDA over the last 12 months, we view W.W. Grainger’s 0.7× net-debt-to-EBITDA ratio as safe. We also see its $35 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We enjoyed seeing W.W. Grainger beat analysts’ EBITDA expectations this quarter. We were also happy its organic revenue narrowly outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance slightly missed. Overall, this quarter had some positives. The stock traded up 2.8% to $1,052 immediately following the results.

Updated: July 10, 2025 at 11:13 PM EDT

We think that the latest earnings result is only one piece of the bigger puzzle. If you’re deciding whether to own W.W. Grainger, you should also grasp the company’s longer-term business quality and valuation.

We think W.W. Grainger is a solid business. To kick things off, its revenue growth was decent over the last five years. And while its projected EPS for the next year is lacking, its expanding operating margin shows the business has become more efficient. On top of that, its astounding EPS growth over the last five years shows its profits are trickling down to shareholders.

W.W. Grainger’s P/E ratio based on the next 12 months is 25.2x. When scanning the industrials space, W.W. Grainger trades at a fair valuation. If you’re a fan of the business and management team, now is a good time to scoop up some shares.

Wall Street analysts have a consensus one-year price target of $1,081 on the company (compared to the current share price of $1,048), implying they see 3.2% upside in buying W.W. Grainger in the short term.