Thanks to earnings reports from the likes of Applied Industry Technology (NYSE:AIT) and Fastenal (NASDAQ:FAST), we could guess that Grainger (NYSE:GWW) was going to be in line for good earnings. Or, at the very least, it would have been a heck of a surprise for one of the biggest dogs on the block not to enjoy some of the same growth.
Overall sales in the third quarter climbed 10% as the company saw strength in pretty much every market except transportation. In the branch-based MRO distribution business, sales rose 10%, and the market expansion program is starting to show some bite. The branch segment got a 1% overall boost from the program, and within the markets themselves, the phase 1, 2, and 3 programs showed 9%, 17%, and 18% growth, respectively. The phase 1 results were hurt by lower sales to a single large customer. Strip those out, and sales were up 13%.
Although Grainger operating profits in the lab safety business only grew 9%, improved margins in the branch business powered operating earnings ahead 27%, handily outstripping top-line growth. The company is also continuing to make progress overseas, as sales in Mexico climbed 18% and sales in Canada climbed 7% in local currency.
If there's a big downside to Grainger (aside from its broad exposure to the health of the manufacturing sector), it's in its shareholder communications. There's no balance sheet, no cash flow statement, and no earnings conference call. While that does not cancel out this company's solid fiscal performance, it's an issue that prospective investors have to accept if they want to own shares.
On top of strong earnings growth and solid cash flow performance (operating cash flow grew about 17% over last year's level), the company raised its guidance for the rest of the year. Trading at less than 18 times forward earnings, Grainger seems neither cheap nor dear. Though inextricably linked to the health of the economy, Grainger is a very large player in a market where size can deliver some considerable long-term competitive advantages.
For more on MRO suppliers:
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).
