What happened

Industrial products distributor W.W. Grainger (GWW -0.14%) surprised investors with a better-than-expected quarter, and said it expects the strong showing to continue into 2023. Investors celebrated the results, sending shares of Grainger up 13.4% in February, according to data provided by S&P Global Market Intelligence.

So what

Grainger is a distributor of parts and components to a wide range of industrials. The company had an impressive fourth quarter, reporting earnings of $7.14 per share, $0.13 ahead of expectations, on revenue that was just ahead of what Wall Street had expected at $3.8 billion.

For the full year, sales were up 16.9%, or 19.3% when currency fluctuations are removed, and Grainger was able to improve its operating margin by 265 basis points to 14.5%.

CEO D.G. Macpherson said: "Our strong 2022 performance was driven by the team's focused execution against our long-term strategy in a robust demand market. As we look to 2023, we remain focused on delivering value for our customers and strong results for shareholders and team members."

The results catapulted the shares higher, and they remained there for the rest of the month with little change even as the broader markets experienced volatility. Following earnings, Grainger was upgraded to sector perform at RBC Capital. At least five analysts also raised their price targets.

Now what

Grainger expects to generate earnings of $32 to $34.50 per share in 2023 on sales of between $16.2 billion and $16.8 billion. Both ranges are above analyst expectations for $30.93 per share in earnings on sales of $15.94 billion.

This is a company that is benefiting from global scale in what is a highly fragmented marketplace. Grainger by its own estimates controls just 6% of its total potential U.S. market and just 4% of the global market, providing plenty of opportunities for growth from here.

Grainger isn't the sort of stock that investors expect outsize moves from, but the company has a steady history of outperformance with the shares up more than 150% over the past five years. The year-end report did little to suggest that momentum was stalling, and the stock was up as a result.