Given a reasonably healthy economy and good results from the likes of MSC Industrial (NYSE:MSM) and Fastenal (NASDAQ:FAST), it's hardly surprising that W.W. Grainger (NYSE:GWW) also saw a good second quarter of business.
Sales for this large MRO (maintenance, repair, and operations) supplier rose 9% to just under $1.4 billion. The quarterly gross profit margin improved nicely from the year-ago level, climbing to 9.3% from 8.5%, even after the company surrendered a bit of margin to higher SG&A expenses.
In the branch-based distribution business, sales were up 9%, and operating earnings climbed 16%. The company has continued to move forward with its multi-phase expansion strategy; management reported that this ongoing market expansion provided about 1% of the segment's growth. In the company's lab-safety supply business, sales climbed 14% and operating earnings rose 12%.
There are many different ways to analyze Grainger's peer group, but it is the largest such supplier in the country -- and that size gives it considerable leverage. Because Grainger is so large, it not only can get preferential pricing from suppliers, but it can also afford to offer customers a variety of services (like online ordering) that would simply be too expensive or impractical for the mom-and-pops that still collectively make up most of the industry.
Grainger has also begun to look abroad for growth. Second-quarter sales in Canada and Mexico were solid. In time, Grainger might well move into additional markets -- perhaps China, where the company already has relationships for sourcing products.
Grainger has at least two strong points in its favor. First, it's the largest player in a favorable industry, with a solid national footprint. Despite what you may have heard, size does matter. Second, while valuation on Grainger shares isn't necessarily dirt-cheap, it's a reasonable bargain relative to peers such as MSC, Applied Industrial (NYSE:AIT), Wesco (NYSE:WCC), or Fastenal.
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Fool contributor Stephen Simpson owns shares of MSC Industrial. The Fool has a disclosure policy.
